A Reappraisal of the Inflation-Unemployment Tradeoff

Dennis Snower, Marika Karanassou and Hector Sala

No 3665, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 inflation-unemployment tradeoff.

Keywords: inflation; Unemployment; Phillips curve; Nominal inertia; Wage-price staggering; Monetary policy; Business cycles; Forward-looking expectation (search for similar items in EconPapers)
JEL-codes: E20 E30 E40 E50 J30 (search for similar items in EconPapers)
Date: 2002-12
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Related works:
Journal Article: A reappraisal of the inflation-unemployment tradeoff (2005)
Working Paper: 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)
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