nonaccelerating inflation rate of unemployment
Non-Accelerating Inflation Rate of Unemployment
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.