Inflation and Establishment Turnover

Gaetano Antinolfi () and David Scott Kaplan ()

Eastern Economic Journal, 2007, vol. 33, issue 3, pages 317-341

Abstract: We study a channel through which inflation can have effects on the real economy. Using job creation and destruction data from U.S. manufacturing establishments from 1973-1988, we show that both jobs created by new establishments and jobs destroyed by dying establishments are negatively correlated with inflation. These results are robust to controls for the real-business cycle and monetary policy. Over a longer time frame, data on business failures confirm our results obtained from job creation and destruction data. We discuss how interaction of inflation with financial-markets, nominal-wage rigidities, and imperfect competition could explain the empirical evidence.

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