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Inflation and unemployment in the long run

Aleksander Berentsen (), Guido Menzio () and Randall Wright ()

No 442, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

Abstract: We study the long-run relation between money, measured by inflation or interest rates, and unemployment. We first document in the data a positive relation between these variables at low frequencies. We then develop a framework where unemployment and money are both modeled using microfoundations based on search and bargaining theory, providing a unified theory for analyzing labor and goods markets. The calibrated model shows that money can account for a sizable fraction of trends in unemployment. We argue it matters, qualitatively and quantitatively, whether one uses monetary theory based on search and bargaining, or an alternative ad hoc specification.

Date: 2009-09
New Economics Papers: this item is included in nep-cba, nep-dge, nep-lab, nep-mac and nep-mon
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Related works:
Journal Article: Inflation and Unemployment in the Long Run (2011) Downloads
Working Paper: Inflation and unemployment in the long run (2009) Downloads
Working Paper: Inflation and Unemployment in the Long Run (2008) Downloads
Working Paper: Inflation and Unemployment in the Long Run (2008) Downloads
Working Paper: Inflation and Unemployment in the Long Run (2008)
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