NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

High Unemployment in Europe: Diagnosis and Policy Implications

Jeffrey Sachs

NBER Working Paper No. 1830
Issued in February 1986
NBER Program(s):   ITI   IFM

Econometric evidence suggests that the non-accelerating inflation rate of unemployment (the NAIRU) has risen sharply in Europe in the past fifteen years. In the first section of this paper, I review the recent proliferation of supply-side models that say interesting things about why the NAIRU hasincreased so substantially in Europe. In the second section of the paper, I employ a simple example to show how aggregate demand should optimally be managed in response to transitory and permanent supply shocks, especially those shocks that cause a persistent rise in the NAIRU. Also, I discuss some policy implications of the increasingly popular "hysteresis hypothesis, that the NAIRU itself is influenced by the time path of actual unemployment.

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Document Object Identifier (DOI): 10.3386/w1830

Published: Unemployment in Europe, C-H Siven ed, September 1985, SAF, Stockholm, SWEDE N

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