DP3691 The Return of the Long-Run Phillips Curve

Author(s): Liam Graham, Dennis J. Snower
Publication Date: January 2003
Keyword(s): forward-looking expectations, inflation, monetary policy, nominal inertia, Phillips Curve, unemployment
JEL(s): E20, E30, E40, E50
Programme Areas: Labour Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=3691

This paper integrate microfoundations of wage staggering into a simple dynamic general equilibrium model with rational expectations. In this context we show that a permanent increase in money growth leads to a permanent increase in the rate of inflation and a permanent reduction in the level of unemployment. In short, we derive a microfounded long-run downward-sloping Phillips curve.