Long-run relationship between inflation and growth in a New Keynesian framework
Hiroki Arato
MPRA Paper from University Library of Munich, Germany
Abstract:
This paper examines the steady-state growth effect of inflation in an endogenous growth model in which the Calvo-type nominal rigidity with endogenous contract duration and monetary friction via wage-payment-in-advance constraint are assumed. On the balanced-growth path in this model, the marginal growth effect of inflation is weakly negative or even positive at low inflation rates because the effect on average markup offsets the negative marginal growth effect through the monetary friction but the growth effect of inflation is negative and convex at higher inflation rates because the frequency of price adjustment approaches that of the flexible-price economy and the growth effect through the nominal rigidity is dominated by the growth effect through the monetary friction. With a plausible calibration of the structural parameters, this model generates a relationship between inflation and growth that is consistent with empirical evidence, especially in industrial countries.
Keywords: Inflation and growth; Sticky prices; Endogenous contract duration (search for similar items in EconPapers)
JEL-codes: E31 O42 (search for similar items in EconPapers)
Date: 2008-11-05
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (1)
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https://mpra.ub.uni-muenchen.de/11388/1/MPRA_paper_11388.pdf original version (application/pdf)
https://mpra.ub.uni-muenchen.de/15205/1/MPRA_paper_15205.pdf revised version (application/pdf)
Related works:
Journal Article: Long-run relationship between inflation and growth in a New Keynesian framework (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:11388
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