TY  - RPRT
        AU  - Karanassou, Marika
AU  - Sala, Hector
AU  - Salvador, Pablo F.
        TI  - The (Ir)relevance of the NRU for Policy Making: The Case of Denmark
        PY  - 2006/Oct/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 2397
        UR  - https://www.iza.org/index.php/publications/dp2397
        AB  - We reconsider the central role of the natural rate of unemployment (NRU) in forming policy decisions. We show that the unemployment rate does not gravitate towards the NRU due to frictional growth, a phenomenon that encapsulates the interplay between lagged adjustment processes and growth in dynamic labour market systems. We choose Denmark as the focal point of our empirical analysis and find that the NRU explains only 33% of the unemployment variation, while frictional growth accounts for the remaining 67%. Therefore, our theoretical and empirical findings raise serious doubts as to whether the NRU should play a key instrumental role in policy making.
        KW  - unemployment
KW  - frictional growth
KW  - chain reaction theory
KW  - labour market dynamics
KW  - natural rate of unemployment
        ER  -