Inflation and Unemployment in the Long Run

Aleksander Berentsen, Guido Menzio and Randall Wright

American Economic Review, 2011, vol. 101, issue 1, 371-98

Abstract: We study the long-run relation between money (inflation or interest rates) and unemployment. We document positive relationships between these variables at low frequencies. We develop a framework where money and unemployment are modeled using explicit microfoundations, providing a unified theory to analyze labor and goods markets. We calibrate the model and ask how monetary factors account for labor market behavior. We can account for a sizable fraction of the increase in unemployment rates during the 1970s. We show how it matters whether one uses monetary theory based on the search-and-bargaining approach or on an ad hoc cash-in-advance constraint. (JEL E24, E31, E41, E43, E52)

Date: 2011
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Citations: View citations in EconPapers (121)

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Working Paper: Inflation and Unemployment in the Long Run (2008)
Working Paper: Inflation and Unemployment in the Long Run (2008)
Working Paper: Inflation and Unemployment in the Long Run (2008)
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