Inflation and Unemployment in the Long Run

Randall Wright, Guido Menzio and Aleksander Berentsen

No 34, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: We study the long run (low frequency) dynamic relationship between money, as measured by inflation or interest rates, and unemployment. We first discuss the data. We then develop a framework where money and unemployment are both modeled with microfoundations based on explicit frictions. This integrates and extends recent work in macro-labor economics and in monetary theory, and provides a unified model for the analysis of unemployment and inflation. We discuss optimal fiscal and monetary policy. We then calibrate the model and discuss the extent to which it can account for salient aspects of the data. For a reasonable calibration we find that changes in monetary policy account a sizable component of the low frequency movement in unemployment.

Date: 2008
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Related works:
Journal Article: Inflation and Unemployment in the Long Run (2011)
Working Paper: Inflation and Unemployment in the Long Run (2008)
Working Paper: Inflation and Unemployment in the Long Run (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed008:34

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