DP3690 Long-Run Inflation-Unemployment Dynamics: The Spanish Phillips Curve and Economic Policy

Author(s): Marika Karanassou, Hector Sala, Dennis J. Snower
Publication Date: January 2003
Keyword(s): forward-looking expectations, inflation-unemployment tradeoff, monetary policy, nominal inertia, phillips curve, staggered wage contracts
JEL(s): E20, E30, E40, E50, J30
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3690

This Paper takes a new look at the long-run dynamics of inflation and unemployment in response to permanent changes in the growth rate of the money supply. We examine the Phillips curve from the perspective of what we call ‘frictional growth’, i.e. the interaction between money growth and nominal frictions. After presenting theoretical models of this phenomenon, we construct an empirical model of the Spanish economy and, in this context, we evaluate the long-run inflation-unemployment tradeoff for Spain and examine how recent policy changes have affected it.