NAIRU

The non-accelerating inflation rate of unemployment (NAIRU) is a theoretical level of unemployment below which inflation would be expected to rise. It was first introduced as the NIRU (non-inflationary rate of unemployment) by Franco Modigliani and Loukas Demetrios Papademos in 1975, as an improvement over the "natural rate of unemployment" concept, which was proposed earlier by Milton Friedman. In the United States, estimates of the NAIRU ranged between 5 and 6% in the late 20th and early 21st centuries, but have fallen to below 4% since the recovery from the 2008 financial crisis. Monetary policy conducted under the assumption of a NAIRU typically involves allowing just enough unemployment in the economy to prevent inflation rising above a given target figure. Prices are allowed to increase gradually and some unemployment is tolerated.