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A Search Model of Unemployment and Inflation

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  • Lehmann, Etienne

    ()
    (CRED, Université Panthéon Assas Paris 2)

Abstract

In this paper, I introduce money in the standard labor-matching model (Mortensen and Pissarides 1999, Pissarides 2000). A double coincidence problem makes Fiat Money necessary as a medium of exchange. In the long-run, a rise in the rate of money growth leads to higher inflation and higher unemployment, so the long-run Phillips curve is not vertical. The optimal monetary growth rate decreases with the workers’ bargaining power, the level of unemployment benefits and the payroll tax rate.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2194.

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Length: 23 pages
Date of creation: Jul 2006
Date of revision:
Publication status: published in: Scandinavian Journal of Economics, 2012, 114 (1), 245-266.
Handle: RePEc:iza:izadps:dp2194

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Keywords: search-matching; unemployment; Friedman rule; inflation;

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References

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  1. King, Robert G. & Watson, Mark W., 1994. "The post-war U.S. phillips curve: a revisionist econometric history," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 157-219, December.
  2. Guillaume Rocheteau & Randall Wright, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," PIER Working Paper Archive 03-031, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania.
  3. Christopher A. Pissarides & Giovanna Vallanti, 2007. "The Impact Of Tfp Growth On Steady-State Unemployment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 607-640, 05.
  4. Kiyotaki, Nobuhiro & Wright, Randall, 1993. "A Search-Theoretic Approach to Monetary Economics," American Economic Review, American Economic Association, vol. 83(1), pages 63-77, March.
  5. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.
  6. Shouyong Shi, 1996. "A Divisible Search Model of Fiat Money," Working Papers 930, Queen's University, Department of Economics.
  7. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, . "Friedman Meets Hosios: Efficiency in Search Models of Money," IEW - Working Papers 154, Institute for Empirical Research in Economics - University of Zurich.
  8. Robert King & Mark W. Watson, 1992. "Testing Long Run Neutrality," NBER Working Papers 4156, National Bureau of Economic Research, Inc.
  9. Stephen Nickell & Luca Nunziata & Wolfgang Ochel, 2005. "Unemployment in the OECD Since the 1960s. What Do We Know?," Economic Journal, Royal Economic Society, vol. 115(500), pages 1-27, 01.
  10. Blanchard, Olivier & Wolfers, Justin, 2000. "The Role of Shocks and Institutions in the Rise of European Unemployment: The Aggregate Evidence," Economic Journal, Royal Economic Society, vol. 110(462), pages C1-33, March.
  11. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
  12. Cooley, Thomas F & Hansen, Gary D, 1989. "The Inflation Tax in a Real Business Cycle Model," American Economic Review, American Economic Association, vol. 79(4), pages 733-48, September.
  13. Narayana R. Kocherlakota, 1996. "Money is memory," Staff Report 218, Federal Reserve Bank of Minneapolis.
  14. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  15. Lockwood, Ben & Manning, Alan, 1993. "Wage setting and the tax system theory and evidence for the United Kingdom," Journal of Public Economics, Elsevier, vol. 52(1), pages 1-29, August.
  16. Cooley, Thomas F. & Quadrini, Vincenzo, 2004. "Optimal monetary policy in a Phillips-curve world," Journal of Economic Theory, Elsevier, vol. 118(2), pages 174-208, October.
  17. James Bullard, 1999. "Testing long-run monetary neutrality propositions: lessons from the recent research," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 57-77.
  18. Peter Rupert & Martin Schindler & Andrei Shevchenko & Randall Wright, 2000. "The search-theoretic approach to monetary economics: a primer," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 10-28.
  19. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, December.
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Citations

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Cited by:
  1. Aleksander Berentsen & Guido Menzio & Randall Wright, 2009. "Inflation and Unemployment in the Long Run," Kiel Working Papers 1501, Kiel Institute for the World Economy.
  2. Etienne, LEHMANN & Bruno, VAN DER LINDEN, 2007. "Search Frictions on Product and Labor markets : Money in the Matching Function," Discussion Papers (ECON - Département des Sciences Economiques) 2007013, Université catholique de Louvain, Département des Sciences Economiques.
  3. Pedro Gomis-Porqueras & Benoit Julien & Chengsi Wang, 2010. "Optimal Monetary and Fiscal Policies in a Search-Theoretic Model of Money and Unemployment," Discussion Papers 2010-23, School of Economics, The University of New South Wales.

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