  |
|
|
||||
|
||||
A Reappraisal of the Inflation-Unemployment Tradeoff
Marika Karanassou Queen Mary, University of London - Department of Economics; Institute for the Study of Labor (IZA) Hector Sala Autonomous University of Barcelona - Department of Applied Economics; Institute for the Study of Labor (IZA) Dennis J. Snower University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) November 2002 IZA Discussion Paper No. 636 Abstract: This paper offers a reappraisal of the inflation-unemployment tradeoff, based on "frictional growth" describing the interplay between nominal frictions and money growth. When the money supply grows in the presence of price inertia (due to staggered wage contracts with time discounting), the price adjustments to each successive change in the money supply are never able to work themselves out fully. In this context, monetary shocks have a gradual and delayed effect on inflation, and these shocks also generate plausible impulse-responses for unemployment. Although our theory contains no money illusion, no permanent nominal rigidities, and no departure from rational expectations, there is a long-run inflationunemployment tradeoff.
Keywords: Inflation, Unemployment, Phillips Curve, Nominal Inertia, Wage-price Staggering, Monetary Policy, Business Cycles, Forward-looking Expectations JEL Classifications: E2, E3, E4, E5, J3 Working Paper SeriesDate posted: December 12, 2002 ; Last revised: October 22, 2004Suggested CitationContact Information
|
|
|||||||||||||||||||||||||||||||||||
© 2010 Social Science Electronic Publishing, Inc. All Rights Reserved.
FAQ
Terms of Use
Privacy Policy
Copyright
This page was served by apollo1 in 0.157 seconds.
One-Click Download
Facebook
Twitter
Digg
Del.icio.us
CiteULike
