Working Paper: CEPR ID: DP3691
Authors: Liam Graham; Dennis Snower
Abstract: This paper integrate microfoundations of wage staggering into a simple dynamic general equilibrium model with rational expectations. In this context we show that a permanent increase in money growth leads to a permanent increase in the rate of inflation and a permanent reduction in the level of unemployment. In short, we derive a microfounded long-run downward-sloping Phillips curve.
Keywords: Forward-looking expectations; Inflation; Monetary policy; Nominal inertia; Phillips curve; Unemployment
JEL Codes: E20; E30; E40; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| money growth (O42) | inflation (E31) |
| money growth (O42) | unemployment (J64) |
| inflation (E31) | unemployment (J64) |