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Hysteresis in the New Keynesian three equation model

Author

Listed:
  • Robert Calvert Jump

    (University of Greenwich)

  • Paul Levine

    (University of Surrey)

Abstract

This paper introduces unemployment hysteresis into a tractable New Keynesian three equation model using an insider-outsider labour market. We demonstrate that strict inflation targeting can lead to a unit root in the unemployment rate, but dual mandate monetary policy can stabilise the economy around its efficient employment rate.

Suggested Citation

  • Robert Calvert Jump & Paul Levine, 2021. "Hysteresis in the New Keynesian three equation model," School of Economics Discussion Papers 0821, School of Economics, University of Surrey.
    • Handle: RePEc:sur:surrec:0821
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    File URL: https://repec.som.surrey.ac.uk/2021/DP08-21.pdf
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    References listed on IDEAS

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    More about this item

    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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