Beveridgean Phillips Curve

Pascal Michaillat and Emmanuel Saez

Papers from arXiv.org

Abstract: This paper proposes a new, Beveridgean model of the Phillips curve. While the New Keynesian Phillips Curve is based on monopolistic pricing under price-adjustment costs, the Beveridgean Phillips curve is based on directed-search pricing under price-adjustment costs. Under directed-search pricing, prices respond to slack instead of marginal costs. The Beveridgean Phillips curve links the inflation gap to the unemployment gap, with the following properties. First, it produces the divine coincidence: it guarantees that the rate of inflation is on target whenever the rate of unemployment is efficient. Second, whenever the Beveridge curve shifts, the Phillips curve shifts if it is formulated with inflation and unemployment, but it remains unaffected if it is formulated with inflation and labor-market tightness. Third, the Phillips curve displays a kink at the point of divine coincidence if we assume that wage decreases -- which reduce workers' morale -- are more costly to producers than price increases -- which upset customers. These three properties describe recent US data well.

Date: 2024-01, Revised 2024-10
New Economics Papers: this item is included in nep-mon
References: View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2401.12475 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2401.12475

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().