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

Dany Lang and Mark Setterfield

No 1509, Working Papers from New School for Social Research, Department of Economics

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 homogenous 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)
Pages: 29 pages
Date: 2015-05
New Economics Papers: this item is included in nep-mac
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http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_092015.pdf First version, 2015 (application/pdf)

Related works:
Journal Article: Is there scientific progress in macroeconomics? The case of the NAIRU (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1509

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