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: O42 E31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mac
Date: 2008-11-05, Revised 2009-05-13
View list of references

Downloads: (external link)
http://mpra.ub.uni-muenchen.de/11388/ orginal version
http://mpra.ub.uni-muenchen.de/15205/ revised version

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:11388

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany
Address: Schackstr. 4, D-80539 Munich, Germany
Contact information at EDIRC.
Series data maintained by Ekkehart Schlicht ().