Thirdly, we regard wage inflation rather than product price inflation, thus
= (W /W[-1] - 1). Please note that we use the different letter font
for wage inflation, since we use w for the level variable in densities like e[w]. Properly we should substract productivity growth, but for our purposes we may now assume that productivity is constant. Note that wage inflation can be different from price inflation, since productivity is determined in terms of the output price, and output will not be only consumer goods but also exports, investments and intermediates.
We will use the term “Constant Inflation Rate of Unemployment” (CIRU) for that rate of unemployment that causes p = p[-1]. Similarly, the Constant Wage Inflation Rate of Unemployment (CWIRU) gives that rate of unemployment that causes
=
[-1]. [86]