The views expressed are those of the authors and not necessarily those of the Bank of England or the Monetary Policy Committee. We thank Andrew Bailey, Larry Ball, Ian Bond, John Butler, David England, Mike Joyce, Katerina Juselius, Hashmat Khan, Lavan Mahadeva, Patrick Minford, Nigel Pain, Roberto Perotti, Mark Schweitzer, Sushil Wadhwani, Peter Westaway, an anonymous referee and participants at the Royal Economic Society conference 2001, European Economic Association conference 2001, Canadian Economic Association conference 2001, 5th International Conference on Macroeconomic Analysis and International Finance 2001 and the International Economics and Finance Society conference, November 2000, as well as seminar participants at the Bank of England for helpful comments and suggestions. Any remaining errors are our own.
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Whatever Happened to Goldilocks? The Role of Expectations in Estimates of the NAIRU in the US and the UK†
Article first published online: 2 FEB 2006
DOI: 10.1111/j.1468-0084.2006.00152.x
Additional Information
How to Cite
Driver, R. L., Greenslade, J. V. and Pierse, R. G. (2006), Whatever Happened to Goldilocks? The Role of Expectations in Estimates of the NAIRU in the US and the UK. Oxford Bulletin of Economics and Statistics, 68: 45–79. doi: 10.1111/j.1468-0084.2006.00152.x
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Publication History
- Issue published online: 2 FEB 2006
- Article first published online: 2 FEB 2006
- Abstract
- Article
- References
- Cited By
Keywords:
- E24;
- E31
Abstract
During the second half of the 1990s the US economy was characterized as the Goldilocks economy: not too hot, nor too cold, but just right. It was argued that this represented a new paradigm, enabling unemployment to remain low without igniting inflationary pressure. We examine the evidence for a change in the relationship between inflation and unemployment for the US and UK using Phillips curve models. The impact of including explicit inflation expectations is also considered. Inflation expectations are found to play an important role, particularly in the US. When expectations are included there is still evidence that the non-accelerating inflation rate of unemployment (NAIRU) steadily declined during the late 1990s, although this decline in the US NAIRU is not found solely in the 1990s.