The price-price Phillips curve in small open economies and monetary unions
AbstractThis paper extends the efficiency wages / partially adaptive expectations Phillips curve, otherwise known as price-price Phillips curve, from a closed economy context to an open economy one with both commodity trade and capital mobility. We also consider the case of a monetary union (a country) with two member states (regions). Opening the trade account alters the slope of the Phillips curve in an ambiguous way and it makes its position a function of the change of foreign output too. Opening the capital account, after opening the trade one, does not affect the Phillips curve. Within a monetary union, the link between the size of a region and its weight in the Phillips curve has an a priori ambiguous sign. Once resorting to plausible numerical simulations, economic openness reduces the sacrifice ratio. Regarding a monetary union, aggregate inflation is more affected by regional unemployment dynamics the greater is the weight of the region in aggregate unemployment rate and output.
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Bibliographic InfoPaper provided by University of Verona, Department of Economics in its series Working Papers with number 06/2011.
Date of creation: Apr 2011
Date of revision:
efficiency wages; unemployment; Phillips curve; inflation; adaptive expectations;
Find related papers by JEL classification:
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-16 (All new papers)
- NEP-CBA-2011-04-16 (Central Banking)
- NEP-MAC-2011-04-16 (Macroeconomics)
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