Transformational Growth and Full Employment
Edited by Edward J. Nell and Mathew Forstater
Chapter 6: The NAIRU and Fiscal and Monetary Policy for Now and Our Future: Some Comments
Robert Eisner This chapter mixes something old and something new. The section dealing with NAIRU, using data up to 1997, simply updates and re-estimates the material on budget deficits and monetary policy from a number of my previous papers. I have long been denouncing NAIRU, the ÔNon-Accelerating Inflation Rate of Unemployment.Õ The NAIRU is a dogma that has for too long undermined meaningful economic theory and paralyzed economic policy. Here I am offering some empirical results supporting the assertions that fiscal policy can work and that correctly measured budget deficits stimulate the economy and, reinforced by monetary policy, can significantly increase employment, saving and investment and economic growth. I have documented the decline and fall of the NAIRU on many occasions.1 For over three years, inflation has been going down while unemployment has been below the commonly supposed magic NAIRU number of 6 per cent. It has been difficult to avoid saying ÔI told you so.Õ The conventional NAIRU relies upon two basic assumptions: that (a) current and past inflation in equilibrium generates equal future expected and actual inflation; and (b) that for any given time, there is a specific NAIRU that generates an equilibrium. Unemployment above that rate brings continuously decreasing inflation, while unemployment below it continues to increase or accelerate inflation. I should make clear just what the NAIRU means. Those who are not its cognoscenti, devotees or attackers may not appreciate its full implications. The NAIRU goes far beyond the old Phillips Curve, which I also never...
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