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Unemployment Persistence, Inflation and Monetary Policy in A Dynamic Stochastic Model of the Phillips Curve

Author

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  • George Alogoskoufis

    (Athens University of Economics and Business)

Abstract

This paper puts forward an alternative "new Keynesian" dynamic stochastic general equilibrium model of aggregate fluctuations. The model is characterized by one period nomi- nal wage contracts and endogenous persistence of deviations of unemployment from its natural rate. Aggregate fluctuations are analyzed under both a Taylor nominal interest rate rule and under the assumption of optimal discretionary monetary policy. Under both types of monetary policy, the per- sistence of unemployment results in persistent inflation as the central bank responds to deviations of unemployment from its natural rate. Econometric evidence from the United States since the 1890s cannot reject the main predictions of the model.

Suggested Citation

  • George Alogoskoufis, 2016. "Unemployment Persistence, Inflation and Monetary Policy in A Dynamic Stochastic Model of the Phillips Curve," Working Papers 201604, Athens University Of Economics and Business, Department of Economics.
    • Handle: RePEc:aeb:wpaper:201604:y:2016
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    References listed on IDEAS

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    Cited by:

    1. George Alogoskoufis, 2018. "The Clash of Central Bankers with Labour Market Insiders, and the Persistence of Inflation and Unemployment," Economica, London School of Economics and Political Science, vol. 85(337), pages 152-176, January.

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    More about this item

    Keywords

    Aggregate fluctuations; unemployment persistence; inflation; monetary policy; insiders Out- siders; natural rate;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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