Number: RL32274
Title: A Changing Natural Rate of Unemployment: Policy Issues
Authors: Marc Labonte, Government and Finance Division 
Abstract: Decisions to tighten or ease fiscal or monetary policy rely heavily on the economy's position relative to a concept of "full employment," or how much of the economy's labor and capital resources are employed compared to potential resources. Central to determining full employment is the concept of a natural rate of unemployment. When actual unemployment is below (above) the natural rate, it suggests that the economy is operating above (below) full employment and policy should be tightened (eased) to prevent inflation from accelerating (decelerating). Thus, a reliable estimate of the natural rate plays an important role in macroeconomic stabilization policy decisions. This report discusses problems in estimating the natural rate.
Pages: 16
Date: July 10, 2006