Working Paper: NBER ID: w3115
Authors: Roger E.A. Farmer
Abstract: This paper presents empirical evidence from U.S. data of a structurally stable aggregate supply relationship between real and nominal rates of interest and the rate of unemployment. The paper reviews theories of contracts that are based on the twin assumptions of asymmetric information and limited collateral and it argues that these theories (referred to as A.I.L. theories) provide a strong theoretical foundation for a contract-based theory of aggregate supply. It is suggested that the original Phillips curve estimates should be reinterpreted in the light of A.I.L. theories which represent alternatives to the Phelps-Friedman interpretation of the Phillips relationship.
Keywords: Phillips Curve; Aggregate Supply; Asymmetric Information; Limited Collateral
JEL Codes: E31; E52; E61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nominal interest rate (E43) | employment (J68) |
| nominal interest rate (E43) | unemployment (J64) |
| employment (J68) | unemployment (J64) |