And, of course, the appropriate course of monetary policy depends on the balance between these two effects.2 The interaction of these two short-run effects can also be explained in terms of the relationship between the unemployment rate and the nonaccelerating inflation rate of unemployment (NAIRU). The NAIRU is the unemployment rate consistent with steady inflation.
In computing the NAIRU, the customary practice is to abstract from shocks that directly affect inflation over and above the influence of demand pressure - for example, accelerations or decelerations in trend productivity and swings in the relative price of oil are not taken into consideration.