Estimating Natural Rates of Unemployment: A Primer

A line graph showing the headline unemployment rate (red solid line) from 1985--2022 along with two stable-price unemployment rates: the preferred estimate (blue solid line with a shaded range) and the CBO's noncyclical rate of unemployment (blue dashed line). The benchmark unemployment rates show less variation than the actual unemployment rate, particularly from 2020 forward. Estimates of U.S. stable-price rate of unemployment

Abstract

Before the pandemic, the U.S. unemployment rate reached a historic low that was close to estimates of its underlying longer-run value and the short-run level associated with an absence of inflationary pressures. After two turbulent years, unemployment returned to its pre-pandemic low, and the estimated underlying longer-run unemployment rate appeared largely unchanged. However, economic disruptions pushed up the short-run noninflationary rate substantially, as high as 6%. This primer examines these different measures of the natural rate of unemployment and discusses how they can provide useful insights for policymakers.

Publication
Bok, Brandyn, Richard K. Crump, Christopher J. Nekarda, Nicolas Petrosky-Nadeau (2023). “Estimating Natural Rates of Unemployment: A Primer,” Federal Reserve Bank of San Francisco Working Paper 2023-25, August 2023.
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