Non-Accelerating Inflation Rate of Unemployment

The non-accelerating inflation rate of unemployment (NAIRU), also known as the natural rate of unemployment, is the level of unemployment below which inflation begins to accelerate. It is the level of unemployment that the economy can sustain without putting upward pressure on wages and prices.

The NAIRU is not a fixed number, but rather a range. It can vary depending on the economy's underlying conditions, such as the level of productivity, the strength of the labor market, and the rate of technological change.

The NAIRU is important because it helps policymakers to set monetary and fiscal policy. If the unemployment rate is below the NAIRU, then the economy is at risk of overheating and inflation. If the unemployment rate is above the NAIRU, then the economy is at risk of falling into a recession.

There are a number of different ways to estimate the NAIRU. One common method is to use a Phillips curve, which plots the relationship between unemployment and inflation. The NAIRU is the point on the Phillips curve where the slope is zero.

Another method is to use a model of the economy, such as a macroeconomic model or a labor market model. These models can be used to estimate the NAIRU by simulating the economy under different conditions.

The NAIRU is an important concept for understanding the relationship between unemployment and inflation. It is also an important tool for policymakers in setting monetary and fiscal policy.