"A lot of people are talking about full employment these
days. Lawrence Summers bemoaned
its long-term absence at an important
talk at the International
Monetary Fund recently. Janet Yellen, nominated by President Obama to head the Federal Reserve, stressed that
institution’s role in meeting the goal of full employment during her Senate
hearing last week. (...)
What follows is all about the first question, but let us briefly note
why this matters so much, even — we’d say especially — now. To policy makers at
the Federal Reserve and
the many economists who watch and critique their every move, the unemployment
rate associated with full employment is a key parameter. It’s a landing strip
that determines their flight path in ways that have profound implications for
the passengers on board, especially, as we stress below, those sitting in
coach. (...)
For economists, the question we’re asking is this: What is the lowest
unemployment rate consistent with stable inflation, otherwise known as the nonaccelerating
inflation rate of unemployment, or Nairu?"
