The Federal Reserve allowed unemployment to fall substantially in the late 1990s, to a level well below earlier estimates of the NAIRU, without a corresponding tightening of monetary policy. In addition, Meyer (1999) has suggested that episodes of heightened uncertainty about the NAIRU may...

Meyer (1999) has suggested that episodes of heightened uncertainty about the NAIRU may warrant a nonlinear policy response to changes in the unemployment rate. This paper offers a theoretical justification for such a nonlinear policy rule, and provides some empirical evidence on the relative...