Abstract
Central to the neoclassical treatment of inflation is the concept of the ‘natural’ rate of unemployment, which proves to be another term for labour market equilibrium. The ‘naturalness’ of this rate derives from its characteristic of being consistent with a zero rate of change of the price level. The hypothesis that there is a rate of unemployment which does not provoke inflation is the heart of the Phillips curve relationship. This hypothesis need not be based on notional supply and demands nor on a concept of equilibrium. A quite convincing non-neoclassical argument can be made in terms of excess supply and demand in the context of a non-homogeneous labour force.
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Notes and References
A particularly clear presentation of the Neoclassical Keynesian view augmented by expectations is found in the now out-of-print textbook by Barrett (Nancy Smith Barrett, The Theory of Macroeconomic Policy (Englewood Cliffs, New Jersey: Prentice-Hall, 1975) (first edn) pp. 284ff).
Neutrality and super-neutrality are treated in Robert J. Barro, Macro-economics (New York: John Wiley, 1987) (2nd edn) pp. 194–209.
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© 1989 John Weeks
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Weeks, J. (1989). The ‘Natural’ Rate, Neutrality and Monetary Inflation. In: A Critique of Neoclassical Macroeconomics. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-20296-6_15
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DOI: https://doi.org/10.1007/978-1-349-20296-6_15
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-0-333-49382-3
Online ISBN: 978-1-349-20296-6
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