Modelling the heuristic dynamics of the wage and price curve model of equilibrium unemployment

Dag Kolsrud and Ragnar Nymoen ()

Discussion Papers from Statistics Norway, Research Department

Abstract: A standard model of equilibrium unemployment consists of static equations for real wage ambitions (wage curve) and real wage scope (price curve), which jointly determine the NAIRU. The heuristics of the model states that unless the rate of unemployment approaches the NAIRU from any given initial value, inflation will be increasing or decreasing over time. We formalize this influential heuristic argument with the aid of a dynamic model of the wage-price spiral where the static theory's equations are re-interpretated as attractor relationships. We show that NAIRU unemployment dynamics are sufficient but not necessary for inflation stabilization, and that the dynamic wage-price spiral model generally has a dynamically stable solution for any pre-determined rate of unemployment. We also discuss a restricted version of the model that conforms to the accelerationist view that inflation increases/falls if unemployment is not at its 'natural rate'.

Keywords: AS-AD; equilibrium-correction; imperfect competition; macroeconomics; NAIRU; Phillips curve; unemployment; wage-price spiral. (search for similar items in EconPapers)
JEL-codes: E24 E30 J50 (search for similar items in EconPapers)
Date: 2012-01
New Economics Papers: this item is included in nep-cba, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.ssb.no/a/publikasjoner/pdf/DP/dp671.pdf (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:ssb:dispap:671

Access Statistics for this paper

More papers in Discussion Papers from Statistics Norway, Research Department P.O.Box 8131 Dep, N-0033 Oslo, Norway. Contact information at EDIRC.
Bibliographic data for series maintained by L Maasø ().