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A Real Business Cycle Model of the Phillips Curve

Author

Listed:
  • Muñoz Rafael

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))

Abstract

The aim of this article is to show that RBC models can account for the so-called Phillips curve. We propose an efficiency wage model in which money is introduced via a cash-in-advance constraint. Households choose how much effort to devote by comparing present real and nominal wages with past ones. This special intertemporal effort function implies wage sluggishness and a higher volatility of employment compared to standard RBC models. It also reduces a negative contemporaneous correlation between inflation and output, one of the more difficult moments to match for a cash-in-advance model. The model allows to match labor market moments and also to build up a transmission mechanism that affects employment through nominal wage growth. The model generates a Phillips curve that is able to mimic US data.

Suggested Citation

  • Muñoz Rafael, 1998. "A Real Business Cycle Model of the Phillips Curve," LIDAM Discussion Papers IRES 1998005, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:1998005
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    More about this item

    Keywords

    Efficiency wage; RBC; wage sluggishness; cash-in-advance; Phillips curve;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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