Working Paper: NBER ID: w7884
Authors: N. Gregory Mankiw
Abstract: This paper discusses the short-run tradeoff between inflation and unemployment. Although this tradeoff remains a necessary building block of business cycle theory, economists have yet to provide a completely satisfactory explanation for it. According to the consensus view among central bankers and monetary economists, a contractionary monetary shock raises unemployment, at least temporarily, and leads to a delayed and gradual fall in inflation. Standard dynamic models of price adjustment, however, cannot explain this pattern of responses. Reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists.
Keywords: Inflation; Unemployment; Monetary Policy; Phillips Curve
JEL Codes: E31; E32; E52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Monetary policy changes (E52) | Unemployment (J64) |
| Monetary policy changes (E52) | Inflation (E31) |
| Unemployment (J64) | Inflation (E31) |
| Inflation (E31) | Unemployment (J64) |