This site has been archived on 27/01/17

Navigation path

The website of the Directorate General for Economic and Financial Affairs has moved.

You will find all publications issued after July 2015 on the new web presence.

The NAIRU Concept - Measurement uncertainties, hysteresis and economic policy role

Author(s): P. McAdam and K. Mc Morrow

The NAIRU Concept - Measurement uncertainties, hysteresis and economic policy role pdf (339 kB) Choose translations of the previous link 

The present paper looks at the notion of a NAIRU and asks whether it continues to stand up to rigorous analysis in terms of both its theoretical underpinnings or of its empirical applicability. The paper addresses the essential questions in relation to an examination of the NAIRU, namely: firstly can it be reliably calculated ? and secondly, does the concept continue to have any relevance in terms of the micro and macro policy debate ? In relation to the first question, it is stressed that precise measurements of the NAIRU are extremely difficult to produce because any measurement process is dogged by the existence of a number of fundamental sources of uncertainty. As regards the second question, the growing unease, openly articulated in the vast literature on this topic, concerning both the theoretical and empirical underpinnings of the NAIRU, suggests caution needs to be exercised in terms of any policy role being attributed to the concept. The paper tentatively concludes that while theoretically the NAIRU is still a useful concept, its extensive empirical inadequacies render it less than useful in the macro policy context, although a case can still be made for sustaining its use as a structural indicator for cross country, labour flexibility, comparisons.

(European Economy. Economic Papers 136. September 1999. Brussels. 136pp. Tab. Bibliogr. free.)

II/408/99/EN (online)

Additional tools

  • Print version 
  • Decrease text 
  • Increase text