In a speech in 2016, Fed Chair Janet Yellen noted that there is some uncertainty in measuring the natural rate of unemployment:
“it cannot be estimated precisely, and so it could be appreciably higher or lower—although given low readings on wages in recent years, I think the latter possibility is more likely than the former.”
a. Why might a slow rate of wage growth make it likely that the natural rate of unemployment was lower than it had previously been estimated to be?
b. How would a lower natural rate of unemployment affect the short-run Phillips curve? Consider both the unemployment rate version of the Phillips curve and the output gap version of the Phillips curve.