Macroeconomic Shocks in a Dynamized Model of the Natural Rate of Unemployment

Hian Hoon and Edmund Phelps

American Economic Review, 1992, vol. 82, issue 4, 889-900

Abstract: At the microeconomic level, this paper revises and broadens the theory of the equilibrium rate of unemployment, the "natural rate" in a monetary model. The authors begin by recreating Steven Salop's turnover model of the natural rate in its naturally intertemporal version. Useful findings on impact effects and the adjustment process at the individual firm, necessarily excluded by the static version, are shown to derive from the dynamized model. At the macroeconomic level, the authors then provide a general-equilibrium analysis of some shocks showing how they drive the equilibrium unemployment rate and in varying ways also disturb the real rate of interest. Copyright 1992 by American Economic Association.

Date: 1992
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