An Anatomy of the Phillips Curve

Dennis Snower and Marika Karanassou

No 3781, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The Paper examines how the long-run inflation-unemployment trade-off depends on the degree to which wage-price decisions are backward- versus forward-looking. When economic agents, facing time-contingent, staggered nominal contracts, have a positive rate of time preference, the current wage and price levels depend more heavily on past variables (e.g. past wages and prices) than on future variables. Consequently, the long-run Phillips curve becomes downward sloping and, indeed, quite flat for plausible parameter values. This Paper provides an intuitive account of how this long-run Phillips curve arises.

Keywords: Inflation-unemployment trade-off; Wage-price staggering; Monetary policy; Forward- and backward-looking wage-price behaviour; Traditional and new phillips curve (search for similar items in EconPapers)
JEL-codes: E20 E30 E50 J30 (search for similar items in EconPapers)
Date: 2003-02
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