Is the NAIRU 8.5 percent?
By Arnold Kling
Mainstream macro in the 1970s (which a lot of people seem to have gone back to) held that there was a NAIRU, meaning the non-accelerating inflation rate of unemployment. If unemployment was above that, inflation would fall. If it was below that, inflation would increase. So, policy should shoot for the NAIRU.
These days, unemployment is 8.3 percent, and inflation is increasing. Just sayin’.
Pointer from Mark Thoma.
[UPDATE: Along similar lines, a (the?) blogger at Sober Look writes,
if the economy is operating significantly below potential, inflation should have negative acceleration into a deflationary environment. However the two measures have diverged recently, indicating that the slack in the economy may not be that great.
Pointer from Tyler Cowen.]