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The Evolution of Inflation and Unemployment: Explaining the Roaring Nineties

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  • Karanassou, Marika

    ()
    (Queen Mary, University of London)

  • Sala, Hector

    ()
    (Universitat Autònoma de Barcelona)

  • Snower, Dennis J.

    ()
    (Kiel Institute for the World Economy)

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 examine the interaction between money growth (on the one hand) and various real and nominal frictions (on the other). 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.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2900.

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Length: 35 pages
Date of creation: Jul 2007
Date of revision:
Publication status: published in: Australian Economic Papers, 2008, 47 (4), 334-354
Handle: RePEc:iza:izadps:dp2900

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Keywords: inflation dynamics; roaring nineties; unemployment dynamics; Phillips curve;

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Citations

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Cited by:
  1. Karanassou, Marika & Sala, Hector, 2010. "The US inflation-unemployment trade-off revisited: New evidence for policy-making," Journal of Policy Modeling, Elsevier, Elsevier, vol. 32(6), pages 758-777, November.
  2. Marika Karanassou & Hector Sala, 2009. "The US Inflation-Unemployment Tradeoff: Methodological Issues and Further Evidence," Working Papers, Queen Mary, University of London, School of Economics and Finance 647, Queen Mary, University of London, School of Economics and Finance.
  3. Ahrens, Steffen & Snower, Dennis J., 2014. "Envy, guilt, and the Phillips curve," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 99(C), pages 69-84.
  4. Ronald Schettkat & Rongrong Sun, 2008. "Monetary Policy and European Unemployment," Schumpeter Discussion Papers, Universitätsbibliothek Wuppertal, University Library sdp08002, Universitätsbibliothek Wuppertal, University Library.
  5. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2006. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," IZA Discussion Papers 2265, Institute for the Study of Labor (IZA).
  6. Marika Karanassou & Hector Sala, 2008. "Labour Market Dynamics in Australia: What Drives Unemployment?," Discussion Papers, School of Economics, The University of New South Wales 2008-26, School of Economics, The University of New South Wales.
  7. 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, Universitätsbibliothek Wuppertal, University Library sdp09003, Universitätsbibliothek Wuppertal, University Library.
  8. Andrea Vaona, 2013. "Inflation gifts and endogenous growth through learning-by-doing," Working Papers, University of Verona, Department of Economics 09/2013, University of Verona, Department of Economics.

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