Does Inflation Grease the Wheels of Adjustment? New evidence from the US economy

Thomas Palley

International Review of Applied Economics, 1997, vol. 11, issue 3, 387-398

Abstract: This paper presents a new interpretation of the Phillips curve that rests on the process of nominal wage adjustment in a multi-sector economy. Nominal demand growth causes inflation in sectors with full employment, but it speeds up the process of employment creation in sectors with unemployment. As a result, demand-pull inflation is associated with both a reduction in the duration of unemployment and the economy wide average rate of unemployment. The paper provides empirical evidence from the US economy consistent with this claim.

Date: 1997
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DOI: 10.1080/02692179700000025

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