Working Paper: CEPR ID: DP3690
Authors: Marika Karanassou; Hector Sala; Dennis Snower
Abstract: This Paper takes a new look at the long-run dynamics of inflation and unemployment in response to permanent changes in the growth rate of the money supply. We examine the Phillips curve from the perspective of what we call ?frictional growth?, i.e. the interaction between money growth and nominal frictions. After presenting theoretical models of this phenomenon, we construct an empirical model of the Spanish economy and, in this context, we evaluate the long-run inflation-unemployment tradeoff for Spain and examine how recent policy changes have affected it.
Keywords: forward-looking expectations; inflation-unemployment tradeoff; monetary policy; nominal inertia; Phillips curve; staggered wage contracts
JEL Codes: E20; E30; E40; E50; J30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| changes in money growth (O42) | changes in unemployment (J64) |
| changes in money growth (O42) | changes in inflation (E31) |
| money growth (O42) | unemployment (J64) |
| money growth (O42) | inflation (E31) |
| unemployment (J64) | inflation (E31) |
| money growth (O42) | unemployment and inflation (J64) |