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Trend inflation, endogenous mark-ups and the non-vertical Phillips curve

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  • Giovanni Di Bartolomeo
  • Patrizio Tirelli

    ()

  • Nicola Acocella

Abstract

Recent developments in macroeconomics resurrect the view that wel- fare costs of inflation arise because the latter acts as a tax on money balances. Empirical contributions show that wage re-negotiations take place while expiring contracts are still in place. Bringing these seemingly unrelated aspects together in a stylized general equilibrium model, we ?nd a disciplining e¤ect of a positive inflation target on the wage markup and identify a long-term trade-off between in?ation and output.

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File URL: http://dipeco.economia.unimib.it/repec/pdf/mibwpaper186.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by University of Milano-Bicocca, Department of Economics in its series Working Papers with number 186.

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Length: 20 pages
Date of creation: May 2010
Date of revision: May 2010
Handle: RePEc:mib:wpaper:186

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Keywords: trend inflation; long-run Phillips curve; in?ation targeting; real money balances.;

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