Friedman & Phelps: Natural Rate Hypothesis

One important theory that Friedman proposed during his lifetime was the Natural Rate Hypothesis (NRH) or the Non-Accelerating Inflation Rate of Unemployment (NAIRU). Next class, Brittany, Daley, and I will briefly explain this concept to you all but if you would like to learn about it beforehand I included an online article at the bottom that talks about it in-depth. The Natural Rate Hypothesis proposes that natural unemployment is unavoidable in the long-run and is a combination of frictional and structural unemployment. The NRH was later adapted into a long-run Phillips curve, which was the alternative to the contradictory notion of an inflation-unemployment trade-off.

The long-run Phillips curve is a vertical line at the natural rate of unemployment, so inflation and unemployment are unrelated in the long run (Boundless Economics).

Also, after researching the Natural Rate Hypothesis I came across a paper written by Roger Farmer. The ideas are conveyed in his book as well but I figured I would share it with you all as a refresher. The article is no more than 15 pages of text , including the title and sources, so it’s a relatively short read!

http://www.nber.org/papers/w19267
Source: Boundless. “The Long-Run Phillips Curve.” Boundless Economics Boundless, 20 Sep. 2016. Retrieved 09 Feb. 2017 from https://www.boundless.com/economics/textbooks/boundless-economics-textbook/inflation-and-unemployment-23/the-relationship-between-inflation-and-unemployment-105/the-long-run-phillips-curve-401-12498/