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What’s the “normal” unemployment rate?

As the U.S. unemployment rate inches down, it seems reasonable to ask when it will be back to normal. One measure of “normal” is the natural rate of unemployment, sometimes referred to as NAIRU, published by the Congressional Budget Office. This measure is meant to contain all relevant information except for cyclical factors in the unemployment rate. Thus, when there is no difference between the NAIRU and the standard unemployment rate, the standard unemployment rate¬†should be back to normal. Note that the natural rate is calculated, not measured, and thus is subject to the assumptions made. Some of those assumptions relate to whether structural factors should be taken into account. This question led (temporarily) to two different natural rates during the previous recession.

How this graph was created: Search for NAIRU, select both series, and add them to a graph. Then add the civilian unemployment rate. Finally, change the end date to the current date.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: NROU, NROUST, UNRATE

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