Time to Ditch the Natural Rate?

We urge macroeconomists to abandon the 'natural rate' as an analytical device on the ground that it has become a source of great and growing confusion. But we press them to recognise that it has great potential as a policy tool provided we grasp the central idea of a hypothetical unemployment rate, which can be compared with the actual unemployment rate. We integrate three hypothetical unemployment rates with the help of an exploratory macro model and then present a quarterly series for each for Australia for the period 1986(2) to 1997(2). We explain how such series could help in policy-making. Copyright 2003. The Economic Society of Australia.