Inflation and unemployment in the long run

Aleksander Berentsen (), Guido Menzio () and Randall Wright

No iewwp442, IEW - Working Papers from Institute for Empirical Research in Economics - IEW

Abstract: We study the long-run relation between money, measured by inflation or interest rates, and unemployment. We first document in the data a positive relation between these variables at low frequencies. We then develop a framework where unemployment and money are both modeled using microfoundations based on search and bargaining theory, providing a unified theory for analyzing labor and goods markets. The calibrated model shows that money can account for a sizable fraction of trends in unemployment. We argue it matters, qualitatively and quantitatively, whether one uses monetary theory based on search and bargaining, or an alternative ad hoc specification.

New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab, nep-mac and nep-mon
Date: 2009-09
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Related works:
Working Paper: Inflation and Unemployment in the Long Run (2008)
Working Paper: Inflation and Unemployment in the Long Run (2009)
Working Paper: Inflation and Unemployment in the Long Run (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:zur:iewwpx:442

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