Short-term price rigidity in an endogenous growth model: Non-Superneutrality and a non-vertical long-term Phillips-curve

Peter Funk () and Bettina Kromen

No 29, Working Paper Series in Economics from University of Cologne, Department of Economics

Abstract: This model analyses the interaction between inflation and the long-run levels of employment and output growth in a Schumpeterian growth model with quality improving innovations under nominal price rigidity. At the unique REE steady state equilibrium, both employment and growth are hump-shaped functions of money growth peaking at positive inflation rates. This is due to four effects of money growth under rigidity: Erosion of its relative price through inflation and the optimal initial mark-up set in anticipation of this influence a firm’s profits. Dispersion in relative prices causes inefficient production while the change in the average mark-up influences aggregate demand.

Keywords: Inflation; price rigidity; endogenous growth; employment; long-run Phillips curve (search for similar items in EconPapers)
JEL-codes: E24 E31 O31 O42 (search for similar items in EconPapers)
Date: 2006-11-14
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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