Kiel Working Papers, Kiel Institute for World Economics
No 1350:
The Evolution of Inflation and Unemployment: Explaining the Roaring Nineties
Marika Karanassou, Hector Sala and Dennis J. Snower
Abstract: This paper argues that there is a nonzero
inflation-unemployment tradeoff in the long-run due to frictional growth, a
phenomenon that encapsulates the interplay of nominal staggering and money
growth. The existence of a downward-sloping long-run Phillips curve
suggests the development of a holistic framework that can jointly explain
the evolution of inflation and unemployment. Hence, we estimate an
interactive dynamics model for the US that includes wage-price setting and
labour market equations. We then evaluate the inflation-unemployment
tradeoff and assess the impact of productivity, money growth, budget
deficit, and trade deficit on the unemployment and inflation trajectories
during the nineties.
Keywords: Inflation dynamics, unemployment dynamics, Phillips curve, roaring nineties; (follow links to similar papers)
JEL-Codes: E24,; E31,; E51,; E62; (follow links to similar papers)
34 pages, June 2007
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