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Increasing Returns to Scale and the Long-Run Phillips Curve

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  • Andrea Vaona
  • Dennis Snower

Abstract

A growing body of empirical evidence shows that there exists a long-run positive tradeoff between inflation and real macroeconomic activity. Within a New Keynesian framewok, we examine how increasing returns generate a positive long-run relation between inflation and output.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1277.

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Length: 9 pages
Date of creation: May 2006
Date of revision:
Handle: RePEc:kie:kieliw:1277

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Keywords: Phillips curve; Inflation; Increasing returns; nominal inertia; monetary policy;

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References

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  1. Ascari, Guido, 2000. "Optimising Agents, Staggered Wages and Persistence in the Real Effects of Money Shocks," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 110(465), pages 664-86, July.
  2. Laurence M. Ball, 1997. "Disinflation and the NAIRU," NBER Chapters, National Bureau of Economic Research, Inc, in: Reducing Inflation: Motivation and Strategy, pages 167-194 National Bureau of Economic Research, Inc.
  3. Bernanke, Ben S. & Mihov, Ilian, 1995. "Measuring Monetary Policy," Economics Series, Institute for Advanced Studies 10, Institute for Advanced Studies.
  4. Karanassou, Marika & Sala, Hector & Snower, Dennis J., 2003. "The European Phillips Curve: Does the NAIRU Exist?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4102, C.E.P.R. Discussion Papers.
  5. Robert G. King & Alexander L. Wolman, 1996. "Inflation Targeting in a St. Louis Model of the 21st Century," NBER Working Papers 5507, National Bureau of Economic Research, Inc.
  6. Ascari, Guido, 1998. "Superneutrality Of Money In Staggered Wage-Setting Models," Macroeconomic Dynamics, Cambridge University Press, Cambridge University Press, vol. 2(03), pages 383-400, September.
  7. Woodford, Michael, 1997. "Doing Without Money: Controlling Inflation in a Post-Monetary World," Seminar Papers, Stockholm University, Institute for International Economic Studies 632, Stockholm University, Institute for International Economic Studies.
  8. Marika Karanassou & Hector Sala & Dennis J. Snower, 2002. "A Reappraisal of the Inflation-Unemployment Tradeoff," Working Papers, Queen Mary, University of London, School of Economics and Finance 479, Queen Mary, University of London, School of Economics and Finance.
  9. N. Gregory Mankiw, 2000. "The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1905, Harvard - Institute of Economic Research.
  10. George A. Akerlof & William T. Dickens & George L. Perry, 2000. "Near-Rational Wage and Price Setting and the Long-Run Phillips Curve," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 31(1), pages 1-60.
  11. Ray C. Fair, 2000. "Testing the NAIRU Model for the United States," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 64-71, February.
  12. Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 402-15, June.
  13. 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, Elsevier, vol. 41(1), pages 157-219, December.
  14. Mark J Roberts & Dylan Supina, 1997. "Output Price And Markup Dispersion In Micro Data: The Roles Of Producer And Heterogeneity And Noise," Working Papers, Center for Economic Studies, U.S. Census Bureau 97-10, Center for Economic Studies, U.S. Census Bureau.
  15. Devereux, Michael B. & Yetman, James, 2002. "Menu costs and the long-run output-inflation trade-off," Economics Letters, Elsevier, Elsevier, vol. 76(1), pages 95-100, June.
  16. Graham, Liam & Snower, Dennis J., 2004. "The real effects of money growth in dynamic general equilibrium," Working Paper Series, European Central Bank 0412, European Central Bank.
  17. repec:cup:macdyn:v:2:y:1998:i:3:p:383-400 is not listed on IDEAS
  18. Roger Betancourt & Margaret Malanoski, 1999. "An Estimable Model of Supermarket Behavior: Prices, Distribution Services and Some Effects of Competition," Empirica, Springer, Springer, vol. 26(1), pages 55-73, March.
  19. Mark J. Roberts & Dylan Supina, 1997. "Output Price and Markup Dispersion in Micro Data: The Roles of Producer Heterogeneity and Noise," NBER Working Papers 6075, National Bureau of Economic Research, Inc.
  20. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
  21. Ramey, Valerie A, 1991. "Nonconvex Costs and the Behavior of Inventories," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(2), pages 306-34, April.
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Citations

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Cited by:
  1. Ahrens, Steffen & Snower, Dennis J., 2012. "Envy, Guilt, and the Phillips Curve," IZA Discussion Papers 6302, Institute for the Study of Labor (IZA).
  2. Andrea Vaona, 2006. "Merging the Purchasing Power Parity and the Phillips Curve Literatures: Regional Evidence from Italy," Working Papers, University of Verona, Department of Economics 33, University of Verona, Department of Economics.
  3. Guido Ascari & Argia M. Sbordone, 2013. "The macroeconomics of trend inflation," Staff Reports, Federal Reserve Bank of New York 628, Federal Reserve Bank of New York.
  4. Vaona, Andrea, 2013. "Money illusion and the long-run Phillips curve in staggered wage-setting models," Research in Economics, Elsevier, Elsevier, vol. 67(1), pages 88-99.

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