IDEAS home Printed from https://ideas.repec.org/a/bap/journl/160201.html
   My bibliography  Save this article

Combining the Beveridge and the Phillips Curve into an Integrative Model: The Modified Output Gap

Author

Listed:
  • Friedrich L. Sell

    (Bundeswehr University Munich Fakultat WOW, Institut f¨¹r Recht und ?konomie der globalen Wirtschaft,GERMANY)

Abstract

We present a new theoretical concept: modified output gap (MOG), based on the Phillips and on the Beveridge curve. Both of these pillars are derived analytically and combined with each other, revealing the explicit positive relationship between the vacancy ratio and the inflation rate. It is shown how a deterioration in the matching process on the labor market leads to shifts in both curves, but also in the MOG. This indicates that a loss in the efficiency of matching in the labor market, when combined with an increase of the demand in the markets for goods will push up inflation. As a result, a sort of second ¡°policy ineffectiveness lemma¡± emerges: at high levels of mismatch, expansive measures of monetary and/or fiscal policies will lead to higher inflation in the first place with little (positive) repercussions on the real side of the economy.

Suggested Citation

  • Friedrich L. Sell, 2016. "Combining the Beveridge and the Phillips Curve into an Integrative Model: The Modified Output Gap," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 1-12, May.
    • Handle: RePEc:bap:journl:160201
    as

    Download full text from publisher

    File URL: http://www.bapress.ca/ref/ref-article/1923-7529-2016-02-01-12.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Olivier Blanchard & Jordi Galí, 2010. "Labor Markets and Monetary Policy: A New Keynesian Model with Unemployment," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 1-30, April.
    2. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    3. Anthony De Francesco, 1999. "The relationship between unemployment and vacancies in Australia," Applied Economics, Taylor & Francis Journals, vol. 31(5), pages 641-652.
    4. Christopher A. Pissarides, 2011. "Equilibrium in the Labor Market with Search Frictions," American Economic Review, American Economic Association, vol. 101(4), pages 1092-1105, June.
    5. Karsten Albæk & Henrik Hansen, 2004. "The Rise in Danish Unemployment: Reallocation or Mismatch?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(4), pages 515-536, September.
    6. Friedrich L. SELL & David C. REINISCH, 2013. "How do the Eurozone's Beveridge and Phillips curves perform in the face of global economic crisis?," International Labour Review, International Labour Organization, vol. 152(2), pages 191-204, June.
    7. Federico Ravenna & Carl E. Walsh, 2011. "Welfare-Based Optimal Monetary Policy with Unemployment and Sticky Prices: A Linear-Quadratic Framework," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 130-162, April.
    8. Wall, Howard J & Zoega, Gylfi, 2002. "The British Beveridge Curve: A Tale of Ten Regions," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(3), pages 261-280, July.
    9. Olivier Jean Blanchard & Peter A. Diamond, 1989. "The Aggregate Matching Function," NBER Working Papers 3175, National Bureau of Economic Research, Inc.
    10. Ruesga, Santos M. & Da Silva Bichara, Julimar & Pérez Trujillo, Manuel, 2015. "La Gran Recesión y sus efectos sobre la eficiencia del mercado laboral. Un estudio aplicado a nivel regional para determinar el mismatch agregado en España /The Great Recession and its Effects on Labo," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 33, pages 175-200, Enero.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pérez Trujillo, Manuel & Ruesga Benito, Santos & Sell, Friedrich L., 2018. ""Mismatch" in the labor market and inflation: An integrative model with lessons from the Spanish experience," Working Papers in Economics 2018,4, Bundeswehr University Munich, Economic Research Group.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Francesco Furlanetto & Nicolas Groshenny, 2012. "Matching efficiency and business cycle fluctuations," Working Paper 2012/07, Norges Bank.
    2. Eleni Iliopulos & François Langot & Thepthida Sopraseuth, 2019. "Welfare Cost of Fluctuations When Labor Market Search Interacts with Financial Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(8), pages 2207-2237, December.
    3. Francesco Furlanetto & Nicolas Groshenny, 2016. "Mismatch Shocks and Unemployment During the Great Recession," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(7), pages 1197-1214, November.
    4. Tsasa, Jean-Paul K., 2022. "Labor market volatility in a fully specified RBC search model: An analytical investigation," Journal of Mathematical Economics, Elsevier, vol. 103(C).
    5. Ewa Gałecka-Burdziak, 2016. "Aggregate matching in Spain. Time series analysis using cointegration techniques," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 10(1), March.
    6. Rubén Domínguez Díaz, 2021. "Hiring Stimulus and Precautionary Savings in a Liquidity Trap," ECONtribute Discussion Papers Series 072, University of Bonn and University of Cologne, Germany.
    7. Kangasharju, Aki & Hynninen, Sanna-Mari & Pehkonen, Jaakko, 2006. "Regional Matching Frictions and Aggregate Unemployment," Discussion Papers 383, VATT Institute for Economic Research.
    8. Kohlbrecher, Britta, 2016. "Optimal Monetary Policy under Rigid Wages and Decreasing Returns," VfS Annual Conference 2016 (Augsburg): Demographic Change 145867, Verein für Socialpolitik / German Economic Association.
    9. Mileva, Mariya, 2013. "Optimal monetary policy in response to shifts in the beveridge curve," Kiel Working Papers 1823, Kiel Institute for the World Economy (IfW Kiel).
    10. Richard Dutu & Mark J. Holmes & Brian Silverstone, 2016. "Modelling A Regime-Shifting Beveridge Curve," Bulletin of Economic Research, Wiley Blackwell, vol. 68(1), pages 90-104, January.
    11. Federico Di Pace & Matthias Hertweck, 2019. "Labor Market Frictions, Monetary Policy, and Durable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 32, pages 274-304, April.
    12. Matthias S. Hertweck & Vivien Lewis & Stefania Villa, 2021. "Going the Extra Mile: Effort by Workers and Job‐Seekers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(8), pages 2099-2127, December.
    13. Ewa Gałecka-Burdziak, 2012. "Labour market matching – the case of Poland," Bank i Kredyt, Narodowy Bank Polski, vol. 43(3), pages 31-46.
    14. Peter Diamond, 2011. "Unemployment, Vacancies, Wages," American Economic Review, American Economic Association, vol. 101(4), pages 1045-1072, June.
    15. Isabel Cairó & Tomaz Cajner, 2018. "Human Capital and Unemployment Dynamics: Why More Educated Workers Enjoy Greater Employment Stability," Economic Journal, Royal Economic Society, vol. 128(609), pages 652-682, March.
    16. Rendahl, Pontus, 2014. "Fiscal Policy in an Unemployment Crisis," CEPR Discussion Papers 9992, C.E.P.R. Discussion Papers.
    17. Reinhold Kosfeld & Christian Dreger & Hans-Friedrich Eckey, 2008. "On the stability of the German Beveridge curve: a spatial econometric perspective," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(4), pages 967-986, December.
    18. Berger, Johannes & Strohner, Ludwig, 2020. "Documentation of the PUblic Policy Model for Austria and other European countries (PUMA)," Research Papers 11, EcoAustria – Institute for Economic Research.
    19. Mr. Alvar Kangur, 2018. "Competitiveness and Wage Bargaining Reform in Italy," IMF Working Papers 2018/061, International Monetary Fund.
    20. Stéphane Dupraz & Emi Nakamura & Jón Steinsson, 2019. "A Plucking Model of Business Cycles," NBER Working Papers 26351, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    Mismatch; Modified output gap; Macroeconomic policy; Unemployment; Inflation;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bap:journl:160201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Carlson (email available below). General contact details of provider: http://www.bapress.ca .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.