What’s the natural rate of unemployment? Answers from forecasters
International Review of Applied Economics, 2019, vol. 33, issue 5, 712-732
For its panel survey of professional macroeconomic forecasters, the US Federal Reserve asks panelists whether they use the ‘natural rate of unemployment’ (NRU) or ‘non-accelerating inflation rate of unemployment’ (NAIRU) in formulating their forecasts and, also, to estimate the NRU/NAIRU. This paper studies responses and non-responses to those questions in order to interrogate forecasters’ views of the NRU/NAIRU. We find that most panelists in most years say they do not use the NRU/NAIRU, and they do not provide an estimate of it. Among those who do, their NRU/NAIRU estimates differ but usually do not differ significantly from the average of recent unemployment rates. We fail to find much evidence – in either their inflation and unemployment forecasts, NRU/NAIRU estimates, or revisions to those estimates over time – that panelists who use the NRU/NAIRU treat it as an unemployment rate below which inflation rises and above which inflation falls. Finally, we find that the NRU/NAIRU has no informational value for panelists who say they use it; they are no better at accurately forecasting inflation or unemployment.
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