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Long-Run Inflation-Unemployment Dynamics: The Spanish Phillips Curve and Economic Policy

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  • Marika Karanassou
  • Hector Sala
  • Dennis Snower

Abstract

This paper takes a new look at the long-run dynamics of inflation and unemployment in response to permanent changes in the growth rate of the money supply. We examine the Phillips curve from the perspective of what we call “frictional growth,” i.e. the interaction between money growth and nominal frictions. After presenting a theoretical model of this phenomenon, we construct an empirical model of the Spanish economy and, in this context, we evaluate the long-run inflation-unemployment tradeoff for Spain and examine how recent policy changes have affected it.

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1326.

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Length: 27 pages
Date of creation: Jun 2007
Date of revision:
Handle: RePEc:kie:kieliw:1326

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Keywords: Inflation-unemployment tradeoff; Phillips curve; staggered wage contracts; nominal inertia; forward-looking expectations; monetary policy;

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References

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