The Conduct of Monetary Policy and the Natural Rate of Unemployment: A Note.

The potential of monetary policy to affect the natural rate of unemployment is demonstrated for a disaggregated macroeconomic model in which it takes time for labor markets to eliminate excess supplies resulting from stochastic shocks. The effect of aggregate output variability on the natural rate of unemployment is derived for the system in its stochastic steady state and illustrative calculations show the possible effects of varying the monetary policy rule. Copyright 1989 by Ohio State University Press.