The price-price Phillips curve in small open economies and monetary unions
This 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.
|Date of creation:||Apr 2011|
|Date of revision:|
|Contact details of provider:|| Postal: Via Cantarane, 24 - I-37129 Verona|
Phone: +39 045 802 8095
Fax: +39 045 802 8529
Web page: http://www.dse.univr.it
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ver:wpaper:06/2011. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael Reiter)
If references are entirely missing, you can add them using this form.