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Inflation stabilization and normal utilization

Thomas R. Michl ()
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Thomas R. Michl: Department of Economics, Colgate University

No 2023-03, Working Papers from Department of Economics, Colgate University

Abstract: This paper presents a model of inflation and distribution that examines the relationship between the employment of labor and the utilization of capital. It features a structural difference between the wage Phillips curve and the price Phillips curve that gives rise to persistent changes in the real wage whenever the inflation-neutral level of activity fails to utilize the existing capital stock at its normal level. Assuming an inflation-targeting central bank that is obliged to run the system around its inflation-neutral level, these changes will reduce the gap between the inflation-neutral level and normal utilization by moving the system along a stable wage curve. In the end this implies that the inflation-neutral level of employment and full or normal utilization of capital will tendentially coincide, lending some support to the Duménil-Lévy thesis that monetary policy makes normal utilization a long-run center of gravity.

JEL-codes: E11 E12 E24 E31 E52 (search for similar items in EconPapers)
Date: 2023-08-23
New Economics Papers: this item is included in nep-ban, nep-cba, nep-hme, nep-mon and nep-pke
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