nonaccelerating inflation rate of unemployment

Non-Accelerating Inflation Rate of Unemployment

Also called NAIRU. The unemployment rate in an economy below which inflation will begin to rise. The idea behind NAIRU states that a certain unemployment rate is built in to an economy. If unemployment falls too far, the economy will begin to overheat and inflation will rise. This analysis is highly controversial; some economists hold full employment is possible without these negative side effects. Milton Friedman was a major proponent of the NAIRU idea. See also: Phillips curve.
Nonaccelerating inflation rate of unemployment (NAIRU)click for a larger image
Fig. 135 Nonaccelerating inflation rate of unemployment (NAIRU). Phillips curve depicting the NAIRU.

nonaccelerating inflation rate of unemployment (NAIRU)

the underlying rate of UNEMPLOYMENT that is consistent with stable prices (i.e. below which it is not possible to reduce unemployment further without increasing the rate of inflation). The term NAIRU is often used synonymously with the NATURAL RATE OF UNEMPLOYMENT.

The NAIRU can be depicted by reference to the PHILLIPS CURVE. In Fig. 135 the rate of unemployment is shown on the horizontal axis and the rate of inflation is shown on the vertical axis with the Phillips curve showing the ‘trade-off between unemployment and inflation. Point X, where the Phillips curve intersects the horizontal axis, depicts the NAIRU. See NATURAL RATE OF UNEMPLOYMENT for further discussion.

It is to be noted that the rate of inflation associated with any given level of unemployment may itself accelerate as a result of inflationary EXPECTATIONS, with labour market participants adjusting their behaviour (in particular demanding higher money wage rates) to offset higher anticipated inflation. See EXPECTATIONS-ADJUSTED/AUGMENTED PHILLIPS CURVE.

References in periodicals archive ?
BLS defines full employment as an economy in which the unemployment rate equals the nonaccelerating inflation rate of unemployment (NAIRU), no cyclical unemployment exists, and GDP is at its potential.
For the SPF, we take the difference between the unemployment rate and the estimate of the natural rate of unemployment (commonly called the nonaccelerating inflation rate of unemployment, or NAIRU) that the SPF updates once per year.
The natural rate of unemployment is sometimes called the nonaccelerating inflation rate of unemployment (NAIRU) because it is consistent with an economy that is growing at its long-term potential so there is no upward or downward pressure on inflation.
The Congressional Budget Office estimated that the rate close to which that becomes a risk (which is referred to as the nonaccelerating inflation rate of unemployment or NAIRU) may be about 5%.
As noted in box 1, the unemployment gap is the difference between the civilian unemployment rate and the nonaccelerating inflation rate of unemployment (NAIRU).
The consensus view accepted the notion of a nonaccelerating inflation rate of unemployment (NAIRU) as a practical constraint on policy, even though some of its adherents would not identify NAIRU as full, equilibrium, or optimum employment.
Third, the estimated value of the so-called nonaccelerating inflation rate of unemployment (NAIRU) is understated.
CBO's Estimate of the NonAccelerating Inflation Rate of Unemployment (NAIRU), http://www.
The level of the actual unemployment rate relative to the nonaccelerating inflation rate of unemployment (NAIRU) is one such variable.
15) Because the equilibrium unemployment rate does not depend on the rate of inflation, it is the same as the nonaccelerating inflation rate of unemployment (NAIRU).
During the sample period 1960 through 2001, the nonaccelerating inflation rate of unemployment (NAIRU) is estimated at a low 3.
If unemployment falls below this point, known as the nonaccelerating inflation rate of unemployment (NAIRU), inflation tends to accelerate.