Is there scientific progress in macroeconomics? The case of the NAIRU

Dany Lang, Mark Setterfield and Ibrahim Shikaki
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Ibrahim Shikaki: Department of Economics, The New School for Social Research, New York, NY, USA

European Journal of Economics and Economic Policies: Intervention, 2020, vol. 17, issue 1, 19-38

Abstract: We address the question posed in the title of this paper by investigating recent developments in the literature that estimates the NAIRU. A necessary condition for the existence of a NAIRU is dynamic homogeneity: the Phillips curve should be homogeneous of degree one in lagged and/or expected inflation. But contemporary approaches to estimating the NAIRU typically assume rather than test for dynamic homogeneity, thus assuming (rather than testing for) the existence of a NAIRU. We argue that these developments remove the NAIRU from the domain of testable hypotheses and transform the concept into an article of faith. This does not constitute scientific progress.

Keywords: NAIRU; dynamic homogeneity; hysteresis; testable hypothesis (search for similar items in EconPapers)
JEL-codes: B41 C12 E10 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Is there scientific progress in macroeconomics? The case of the NAIRU (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:elg:ejeepi:v:17:y:2020:i:1:p19-38

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