An Anatomy of the Phillips Curve

Marika Karanassou and Dennis J. Snower
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Marika Karanassou: Queen Mary, University of London
Dennis J. Snower: Birkbeck, University of London

No 478, Working Papers from Queen Mary University of London, School of Economics and Finance

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, quite 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)
Date: 2002-12-01
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:qmw:qmwecw:478

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