Economics, Econometrics and Finance
a year ago

Unemployment Rate Key Player in Economic Recoveries, Shaping Inflation Trends

Federal Reserve Bank of San Francisco, Working Paper Series
The Active Role of the Natural Rate of Unemployment during Cyclical Recoveries
Robert E. Hall

Paper Summary

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The natural rate of unemployment plays an active role in the economy, rather than staying constant. This affects how inflation responds to changes in unemployment rates. During the recovery from 2009 to 2020, the natural rate closely followed the actual rate of unemployment. This close tracking could explain why inflation doesn't always respond strongly to changes in unemployment. The common belief that inflation and unemployment are unrelated may be due to assuming the natural rate stays constant during recoveries.