An Anatomy of the Phillips Curve
AbstractThe paper examines how the long-run inflation-unemployment tradeoff depends on the degree to which wage-price decisions are backward- versus forward-looking. When economic agents, facing time-contingent, staggered nominal contracts, have a positive rate of time preference, the current wage and price levels depend more heavily on past variables (e.g. past wages and prices) than on future variables. Consequently, the long-run Phillips curve becomes downward-sloping and, indeed, quite flat for plausible parameter values. This paper provides an intuitive account of how this long-run Phillips curve arises.
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Bibliographic InfoPaper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 478.
Date of creation: Dec 2002
Date of revision:
Inflation-unemployment tradeoff; Wage-price staggering; Monetary policy; Forward- and backward-looking wage-price behavior; Traditional and New Phillips curve;
Find related papers by JEL classification:
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
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- Ascari, Guido & Rankin, Neil, 2002.
"Staggered wages and output dynamics under disinflation,"
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Elsevier, vol. 26(4), pages 653-680, April.
- Ascari, G. & Rankin, N., 2000. "Staggered Wages and Output Dynamics under Disinflation," The Warwick Economics Research Paper Series (TWERPS) 557, University of Warwick, Department of Economics.
- Olivier Jean Blanchard & Stanley Fischer, 1989. "Lectures on Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262022834, January.
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