OVER THIRTY YEARS ago, in his presidential address to the American Economic Association, Milton Friedman asserted that in the long run the Phillips curve was vertical at a natural rate of unemployment that could be identified by the behavior of inflation. Unemployment below the natural rate would generate accelerating inflation, and unemployment above it, accelerating deflation. Five years later the New Classical economists posed a further challenge to the stabilization orthodoxy of the day. In their models with rational expectations, not only was monetary policy unable to alter the long-term level of unemployment, it could not even contribute to stabilization around the natural rate. The New Keynesian economics has shown that, even with rational expectations, small amounts of wage and price stickiness permit a stabilizing monetary policy. But the idea of a natural unemployment rate that is invariant to inflation still characterizes macroeconomic modeling and informs policymaking.