An Anatomy of the Phillips Curve

Dennis Snower and Marika Karanassou ()

No 635, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: The paper examines how the long-run inflation-unemployment tradeoff depends on the degree to which wage-price decisions are backward- versus forward-looking. When economic agents, facing time-contingent, staggered nominal contracts, have a positive rate of time preference, the current wage and price levels depend more heavily on past variables (e.g. past wages and prices) than on future variables. Consequently, the long-run Phillips curve becomes downward-sloping and, indeed, quit flat for plausible parameter values. This paper provides an intuitive account of how this long-run Phillips curve arises.

Keywords: Inflation-unemployment tradeoff; wage-price staggering; monetary policy; forward- and backward-looking wage-price behavior; traditional and New Phillips curve (search for similar items in EconPapers)
JEL-codes: E2 E3 E5 J3 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2002-11
New Economics Papers: this item is included in nep-ltv
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Citations: View citations in EconPapers (6)

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