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The Evolution Of Inflation And Unemployment: Explaining The Roaring Nineties

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Author Info
MARIKA KARANASSOU
HECTOR SALA
DENNIS J. SNOWER

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Abstract

This paper analyses the relation between US inflation and unemployment from the perspective of 'frictional growth,' a phenomenon arising from the interplay between growth and frictions. In particular, we focus on the interaction between money growth and nominal frictions. In this context we show that monetary policy has not only persistent, but permanent real effects, giving rise to a long-run inflation-unemployment tradeoff. We evaluate this tradeoff empirically and assess the impact of productivity, money growth, budget deficit, and trade deficit on the US unemployment and inflation trajectories during the nineties. Copyright 2008 The Authors. Journal compilation 2008 Blackwell Publishing Ltd/University of Adelaide and Flinders University.

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Article provided by Blackwell Publishing in its journal Australian Economic Papers.

Volume (Year): 47 (2008)
Issue (Month): 4 (December)
Pages: 334-354
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Handle: RePEc:bla:ausecp:v:47:y:2008:i:4:p:334-354

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  1. Marika Karanassou & Hector Sala, 2008. "Labour Market Dynamics in Australia: What Drives Unemployment?," Discussion Papers 2008-26, School of Economics, The University of New South Wales. [Downloadable!]
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  2. Ronald Schettkat & Rongrong Sun, 2009. "Nicht zu früh bremsen! - Der Einfluss der Geldpolitik auf die langfristige Wirtschaftsentwicklung in Deutschland und den USA-," Schumpeter Discussion Papers sdp09003, Universitätsbibliothek Wuppertal, University Library. [Downloadable!]
  3. Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," Discussion Papers 2008-08, School of Economics, The University of New South Wales. [Downloadable!]
    Other versions:
  4. Karanassou, Marika & Sala, Hector, 2009. "The US Inflation-Unemployment Tradeoff: Methodological Issues and Further Evidence," IZA Discussion Papers 4252, Institute for the Study of Labor (IZA). [Downloadable!]
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