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NAIRU

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NAIRU - definition

The non-accelerating inflation rate of unemployment (NAIRU) is the specific unemployment rate at which the rate of inflation stabilises - inflation will neither increase nor decrease.

Although a highly theoretical concept it has been influential in shaping monetary policy.  NAIRU is shown graphically as the level of unemployment at the prevailing long run Phillips curve (LRPC).

NAIRU diagram

NAIRU does not necessarily exist at one unemployment rate. Indeed, effective supply-side policy can shift the long run Phillips curve to the left and hence reduce the NAIRU rate.

 


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