Accounting for the Recent Decline in the NAIRU

Robert G. Murphy ()

No 414, Boston College Working Papers in Economics from Boston College Department of Economics

Abstract: This paper confirms that the unemployment rate associated with stable inflation, the so-called "NAIRU," probably has declined in recent years, after having risen sharply during the late 1970s and early 1980s. Although a demographic shift toward a less experienced workforce and an unexpected slowdown in trend productivity growth are able to explain the earlier rise in the NAIRU, a reversal of these effects does not adequately explain the timing of the apparent decline in the NAIRU during the 1990s. I propose that an additional element needs to be incorporated into the assessment. I argue that the degree of integration of regional labor markets across the United States has accelerated over the recent past, leading to a greater degree of synchronization in the pattern of regional labor market conditions and regional business-cycle conditions. I provide evidence of this greater synchronization, and suggest that it may have led to a drift downward in the NAIRU.

Keywords: Nairu; Phillips Curve; Inflation; Natural Rate (search for similar items in EconPapers)
JEL-codes: E0 E3 E6 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ltv
Date: 1998-11-09
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Persistent link: http://EconPapers.repec.org/RePEc:boc:bocoec:414

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