Unemployment and the demand for money

Samuel Huber, Jaehong Kim and Alessandro Marchesiani ()

No 324, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We develop a dynamic general equilibrium model to analyze the relationship between monetary policy, money demand, and unemployment. Our model succeeds in replicating the empirical fact of a downward sloping Phillips curve for low infl ation rates and an upward sloping curve for high inflation rates. The reason is that low in flation rates make saving, as opposed to consumption, more attractive. Less consumption is associated with less output and therefore higher unemployment. To the contrary, when inflation exceeds a certain threshold, money is too costly to hold, which results in a decrease in output and an increase in unemployment.

Keywords: Money; infl ation; overlapping generations; unemployment (search for similar items in EconPapers)
JEL-codes: D90 E31 E41 E50 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:zur:econwp:324

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