## The NAWRU

The NAWRU indicator has been used extensively by the OECD and others on several important issues, including policy evaluation and estimation of potential output and the structural budget balance; see Holden and Nymoen (2002) for a discussion. Elmeskov and MacFarland (1993) and Elmeskov (1994) define the non-accelerating wage rate of unemployment, NAWRU, in terms of a stylised wage-pressure equation

Д2^ = – ct(Ut – UNAWRU), ct > 0, (6.45)

where UNAWRU is the NAWRU level of unemployment. In words, it is assumed that wage inflation is affected in a linear way by the difference between the actual level of unemployment and the NAWRU. Equation (6.45) can either be

seen as a vertical wage Phillips curve (dynamic homogeneity is imposed); or as representing the heuristic dynamics of the wage curve ...