Inflation, Employment and the Phillips Curve: A Comment on the Phelps-Friedman Twist

Douglas Purvis

Working Paper from Economics Department, Queen's University

Abstract: The Friedman-Phelps view of the Phillips curve - that in the long run when expectations have adjusted, there is no trade-off between inflation and employment- is reconsidered. That view implies the only real effects that can arise from inflation are those due to expectational disequilibria. This is in sharp contrast to standard 2 of asset markets which suggest that perfectly anticipated inflation might lower the real interest rate. This paper suggests ways in which such asset market non-neutralities might spill over to the labour market. Such effects arise not as a result of money-illusion, but rather as a result of the central role played in the economic system by money, an asset whose value if fixed in nominal terms and hence bears a real rate of return equal to minus the expected inflation rate.

Pages: 27
Date: 1976
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Persistent link: https://EconPapers.repec.org/RePEc:qed:wpaper:228

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