A Search Model of Unemployment and Inflation

23 Pages Posted: 25 Jul 2006

See all articles by Etienne Lehmann

Etienne Lehmann

CREST; Catholic University of Louvain (UCL) - School of Economic and Social Research (IRES); IZA Institute of Labor Economics

Date Written: July 2006

Abstract

In this paper, I introduce money in the standard labor-matching model (Mortensen and Pissarides 1999, Pissarides 2000). A double coincidence problem makes Fiat Money necessary as a medium of exchange. In the long-run, a rise in the rate of money growth leads to higher inflation and higher unemployment, so the long-run Phillips curve is not vertical. The optimal monetary growth rate decreases with the workers' bargaining power, the level of unemployment benefits and the payroll tax rate.

Keywords: inflation, unemployment, search-matching, Friedman rule

JEL Classification: E24, E52, J64

Suggested Citation

Lehmann, Etienne, A Search Model of Unemployment and Inflation (July 2006). IZA Discussion Paper No. 2194, Available at SSRN: https://ssrn.com/abstract=919982 or http://dx.doi.org/10.2139/ssrn.919982

Catholic University of Louvain (UCL) - School of Economic and Social Research (IRES) ( email )

3, Place Montesquieu
1348 Louvain-la-Neuve
Belgium

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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