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Short-term price rigidity in an endogenous growth model: Non-Superneutrality and a non-vertical long-term Phillips-curve

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Author Info
Peter Funk
Bettina Kromen
Abstract

This model analyses the interaction between inflation and the long-run levels of employment and output growth in a Schumpeterian growth model with quality improving innovations under nominal price rigidity. At the unique REE steady state equilibrium, both employment and growth are hump-shaped functions of money growth peaking at positive inflation rates. This is due to four effects of money growth under rigidity: Erosion of its relative price through inflation and the optimal initial mark-up set in anticipation of this influence a firm’s profits. Dispersion in relative prices causes inefficient production while the change in the average mark-up influences aggregate demand.

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Paper provided by University of Cologne, Department of Economics in its series Working Paper Series in Economics with number 29.

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Date of creation: 14 Nov 2006
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Handle: RePEc:kls:series:0029

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Related research
Keywords: Inflation; price rigidity; endogenous growth; employment; long-run Phillips curve;

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Find related papers by JEL classification:
E24 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O42 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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