A New-Monetarist Phillips Curve

Posted: 5 Nov 2011

See all articles by Tsz-Nga Wong

Tsz-Nga Wong

Washington University in St Louis

Date Written: October 30, 2009

Abstract

A model with labor search, limited recordkeeping and market segmentation is provided to explain the correlations between inflation and real variables in the short run, and in the long run. A one-time money injection causes intensive-margin effects on employment, and reduces the unemployment rate in the short run. There are persistent liquidity effects on real variables, inflation and the nominal interest rate, as a result of search frictions in the labor market. Money injections in the long run raise the unemployment rate. The optimal monetary policy minimizes the distortion from labor-search frictions, and eliminates the intertemporal monetary distortion and the market segmentation friction.

Keywords: Liquidity, Labor-market Search, Unemployment, Market Segmentation, Persistent Liquidity Effect, Persistent Inflation, Liquidity Trap, Optimal Monetary Policy, New Monetarism

Suggested Citation

Wong, Tsz-Nga, A New-Monetarist Phillips Curve (October 30, 2009). Available at SSRN: https://ssrn.com/abstract=1954233 or http://dx.doi.org/10.2139/ssrn.1954233

Tsz-Nga Wong (Contact Author)

Washington University in St Louis ( email )

One Brookings Drive
St. Louis, MO 63130
United States

HOME PAGE: http://sites.google.com/site/tszngawong/

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