A reappraisal of the inflation-unemployment tradeoff

Marika Karanassou (), Hector Sala and Dennis J. Snower

Open Access Publications from Kiel Institute for the World Economy from Kiel Institute for the World Economy (IfW Kiel)

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, temporary nominal rigidities let monetary policy have permanent real effects. Although our theory contains no money illusion, no permanent nominal rigidities, and no departure from rational expectations, there is a long-run inflation-unemployment tradeoff. Our empirical analysis suggests that this Phillips curve may be reasonably flat. We show that the persistence of inflation and unemployment, in response to monetary policy shocks, is related to the slope of the long-run Phillips curve.

Keywords: Inflation; unemployment; Phillips curve; nominal inertia; wage-price staggering; monetary policy; business cycles; forward-looking expectations (search for similar items in EconPapers)
JEL-codes: E2 E3 E4 E5 J3 (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

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https://www.econstor.eu/bitstream/10419/3457/1/Sno ... loyment_Tradeoff.pdf (application/pdf)

Related works:
Journal Article: A reappraisal of the inflation-unemployment tradeoff (2005)
Working Paper: A Reappraisal of the Inflation-Unemployment Tradeoff (2002)
Working Paper: A Reappraisal of the Inflation-Unemployment Tradeoff (2002)
Working Paper: A Reappraisal of the Inflation-Unemployment Tradeoff (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwkie:3457

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