The Time-Varyiing Nairu in the US Economy (1990-2022)

The study argues that there is time-varying nonaccelerating inflation rate of unemployment, (NAIRU) in the US economy, testing the hypothesis during the 1990–2022 period. Time-varying NAIRU is estimated with both annual and quarterly inflation and unemployment with the accelerationist Phillips curve. Reasons for the rises and falls in NAIRU are discussed with emphasis on productivity, change in productivity and wage aspirations. NAIRU has risen from 5.30 to 6.40 percent between 2000–2010 when productivity is in declining trend; and manufacturing productivity has declined between 2015–2021 in spite of the rise in overall productivity from 1.2 to 2.6 percent, without a fall in the NAIRU. The analysis shows that NAIRU shows comovement with productivity growth rather than change in productivity growth. Results imply that downward dynamic of the NAIRU relates more to productivity rise in the manufacturing sector, rather than total productivity. It seems that rising share of the services sector to over 80 percent with the decline in manufacturing has reflected unfavorably on productivity.