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Structural unemployment differs from cyclical unemployment by not disappearing in cyclical booms. In economic theory, structural unemployment is usually analyzed in terms of the concept of equilibrium unemployment (the “natural unemployment rate” in Friedman’s terminology). Two elaborate concepts of equilibrium unemployment – the non-accelerating inflation rate of unemployment (the NAIRU) and t...

A popular model in the literature postulates an interest rate rule, a NAIRU price equation, and an aggregate demand equation in which aggregate demand depends on the real interest rate. In this model a positive inflation shock with the nominal interest rate held constant is explosive because it increases aggregate demand (because the real interest rate is lower), which increases inflation throu...

In recent years organisations such as the OECD, World Bank and the IMF have started to play a more active role in advocating the redesign of labour market institutions. Several similar themes can be found in all these proposals, primarily a belief in the existence of a 'natural' or 'NAIRU' rate of unemployment determined primarily by institutional arrangements such as unemployment benefits, min...

This paper argues that the primary objective of monetary policy should be long run price stability or at least a low average rate of in°ation. But there is also a welfare improving role for monetary policy in helping the economy adjust to nonpolicy shocks. This gives rise to a fundamental tension in the conduct of monetary policy. Understanding this tension is central to interpreting the qualit...

Since Friedman (1968), the traditional derivation of the accelerationist Phillips curve has related expected real wage inflation to the unemployment rate and then invoked markup pricing and adaptive expectations to generate the accelerationist price inflation equation. Blanchflower and Oswald (1994) have argued that microeconomic evidence of a low autoregression coefficient in real wage regress...

This note comments on the state of macroeconomics, arguing that the ‘micro founded’ macro that developed after 1970s has been a wasteful detour. The paper will appear in a symposium in Homo Oeconomicus, vol. 27 (2), 2010, on the crisis and the response from the British Academy to the questions from the British Queen. JEL classification: E1, B41 By the beginning of the 2000s, a self-congratulato...