The Inflation-Unemployment Trade-Off at Low Inflation

Benigno, Pierpaolo and Ricci, Luca Antonio (2008) The Inflation-Unemployment Trade-Off at Low Inflation. [Working Paper]. National Bureau Of Economic Research. p. 46.

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Abstract/Index

Wage setters take into account the future consequences of their current wage choices in the presence of downward nominal wage rigidities. Several interesting implications arise. First, a closed-form solution for a long-run Phillips curve relates average unemployment to average wage inflation; the curve is virtually vertical for high inflation rates but becomes flatter as inflation declines. Second, macroeconomic volatility shifts the Phillips curve outward, implying that stabilization policies can play an important role in shaping the trade-off. Third, nominal wages tend to be endogenously rigid also upward, at low inflation. Fourth, when inflation decreases, volatility of unemployment increases whereas the volatility of inflation decreases: this implies a long-run trade-off also between the volatility of unemployment and that of wage inflation.


Item Type:Report / Paper (Working Paper)
Research documents and activity classification:Working Papers > Non-Refereed Working Papers / of national relevance only
Divisions:Department of Business and Management
MIUR Scientific Area:Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited By:Silvia Capobianchi
Deposited On:27 Oct 2009 12:25
Last Modified:05 Apr 2013 22:03

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