Unemployment and the Demand for Money

University of Zurich, Department of Economics, Working Paper No. 324 (2019)

32 Pages Posted: 12 Jun 2019

See all articles by Samuel Huber

Samuel Huber

University of Basel

Jaehong Kim

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE)

Alessandro Marchesiani

affiliation not provided to SSRN

Date Written: May 27, 2019

Abstract

We develop a dynamic general equilibrium model to analyze the relationship between monetary policy, money demand, and unemployment. Our model succeeds in replicating the empirical fact of a downward sloping Phillips curve for low inflation rates and an upward sloping curve for high inflation rates. The reason is that low inflation rates make saving, as opposed to consumption, more attractive. Less consumption is associated with less output and therefore higher unemployment. To the contrary, when inflation exceeds a certain threshold, money is too costly to hold, which results in a decrease in output and an increase in unemployment.

Keywords: money, inflation, overlapping generations, unemployment

JEL Classification: D90, E31, E41, E50

Suggested Citation

Huber, Samuel and Kim, Jaehong and Marchesiani, Alessandro, Unemployment and the Demand for Money (May 27, 2019). University of Zurich, Department of Economics, Working Paper No. 324 (2019), Available at SSRN: https://ssrn.com/abstract=3394865 or http://dx.doi.org/10.2139/ssrn.3394865

Samuel Huber (Contact Author)

University of Basel ( email )

Petersplatz 1
Basel, CH-4003
Switzerland

Jaehong Kim

Xiamen University - Wang Yanan Institute for Studies in Economics (WISE) ( email )

A 307, Economics Building
Xiamen, Fujian 10246
China

Alessandro Marchesiani

affiliation not provided to SSRN

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