Yet even though economics lends itself to number-crunching, getting or even defining the numbers we crunch can be problematic. In particular, the Fed would very much like to know how high it needs to keep the interest rate — or more precisely, the interest rate minus expected inflation — to avoid overheating the economy and reigniting inflation. This “natural rate of interest,” a term invented in 1898 by the Swedish economist Knut Wicksell, is often referred to as r* or r-star. Back in 1968, Milton Friedman, in a deliberate echo of Wicksell, argued that there is also a “natural” rate of unemployment consistent with stable inflation. Since referring to any level of unemployment as natural raises some people’s hackles, this is often referred to as the NAIRU, for non-accelerating inflation rate of unemployment — and often denoted as, you guessed it, u*.

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Persons: —, John Maynard Keynes, Victoria, Queen Elizabeth —, don’t, Knut Wicksell, Milton Friedman Locations: Swedish