The Macroeconomics of Low Inflation

Abstract The concept of a natural unemployment rate has been central to most modern models of inflation and stabilization. According to these models, inflation will accelerate or decelerate depending on whether unemployment is below or above the natural rate, while any existing rate of inflation will continue if unemployment is at the natural rate. The natural rate is thus the minimum, and only, sustainable rate of unemployment, but the inflation rate is left as a choice variable for policymakers.