The Natural Rate of Unemployment

The Natural Rate of Unemployment : Reflections on 25 Years of the Hypothesis

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For 25 years, theory about the causes of, and possible solutions to, the problem of unemployment has been dominated by Phelps' and Friedman's natural rate of unemployment hypothesis. This postulates that the equilibrium rate of unemployment consistent with steady inflation is determined by structural variables: sustainable reductions in unemployment can be achieved only by measures to change underlying microeconomic structures, such as benefit and pay bargaining systems. Belief in the hypothesis has faltered since the 1980s, the hypothesis being unable to explain the dramatic upward shifts in European unemployment rates. These essays reflect upon the fundamental structures underlying the hypothesis, assess the related evidence, and look forwards, suggesting possible modifications. In contrast to the single rate postulated by the natural rate hypothesis, several of the contributors propose that there are ranges of unemployment rates consistent with steady more

Product details

  • Electronic book text
  • Cambridge University Press (Virtual Publishing)
  • Cambridge, United Kingdom
  • 71 b/w illus. 18 tables
  • 1139240935
  • 9781139240932

Review quote

" The 17 essays in this volume discuss the theoretical foundations, dynamics, empirical status, and political economy of the natural rate hypothesis. They reflect the vigor with which we might expect both proponents and critics to discuss a concept of such central importance. Cross should be applauded for the breadth of his perspective on the natural rate. He has marshalled a wide variety of papers into a volume that is particularly good at highlighting recent advances and which, ultimately, no macroeconomist will want to be without." Mark Setterfield, Eastern Economic Journalshow more

Table of contents

1. Introduction Rod Cross; Part I. The Theoretical Framework: 2. The origins and further development of the natural rate of unemployment Edmund Phelps; 3. The natural rate as new classical macroeconomics James Tobin; 4. Theoretical reflections on the 'natural rate of unemployment' Frank Hahn; 5. Of coconuts, decomposition and a jackass: the genealogy of the natural rate Huw Dixon; Part II. Adjustment, Ranges of Equilibria and Hysteresis: 6. The economics of adjustment Andrew Caplin and John Leahy; 7. Hysteresis and memory in the labour market G. C. Archibald; 8. Models of the range of equilibria Ian McDonald; 9. Hysteresis revisited: a methodological approach Bruno Amable, Jerome Henry, Frederic Lordon and Richard Topol; 10. Is the natural rate hypothesis consistent with hysteresis? Rod Cross; Part III. Empirical Tests and Macro Models: 11. The natural rate hypothesis and its testable implications Hashem Pesaran and Ron Smith; 12. Non-linear dependence in unemployment, output and inflation: empirical evidence for the UK David Peel and Alan Speight; 13. Prices, wages and unemployment in the US economy: a traditional model and tests of some alternatives Albert Ando and Flint Brayton; 14. The natural rate in empirical macroeconomic models Simon Wren-Lewis; Part IV. Political Economy: 15. Is the natural rate of unemployment a useful concept for Europe? Maria Demertzis and Andrew Hughes Hallett; 16. The natural rate of unemployment: a fundamentalist Keynesian view Meghnad Desai; 17. Politics and the natural rate hypothesis: a historical perspective Bernard more