Once the importance of inflation expectations became factored into the analysis, by Phelps (1968) and Friedman (1968), this led on to the concept of the Natural (or Non-Accelerating Inflation) Rate of Unemployment (NAIRU or NRU).1 This is the level of unemployment at which, in the longer term once expectations have fully adjusted to outcomes, the rate of inflation would remain constant. The assessment was that the long-term Phillips curve would be roughly vertical 2 at the NRU. In the short-run, with expectations largely fixed, the Phillips curve would remain downwards sloping. But if the
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