The (IR) relevance of the NRU for policy making: The case of Denmark

Marika Karanassou, Hector Sala, Pablo F. Salvador

Research output: Contribution to journalArticleResearchpeer-review

6 Citations (Scopus)

Abstract

We reconsider the central role of the natural rate of unemployment (NRU) in forming policy decisions. We show that the unemployment rate does not gravitate towards the NRU due to frictional growth, a phenomenon that encapsulates the interplay between lagged adjustment processes and growth in dynamic labour market systems. We choose Denmark as the focal point of our empirical analysis and find that the NRU explains only 33% of the unemployment variation, while frictional growth accounts for the remaining 67%. Therefore, our theoretical and empirical findings raise doubts as to whether the NRU should play such a key instrumental role in policy making. © Journal compilation © 2008 Scottish Economic Society.
Original languageEnglish
Pages (from-to)369-392
JournalScottish Journal of Political Economy
Volume55
DOIs
Publication statusPublished - 1 Jul 2008

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