Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/3113 
Year of Publication: 
2002
Series/Report no.: 
Working Paper No. 479
Publisher: 
Queen Mary University of London, Department of Economics, London
Abstract: 
This paper offers a reappraisal of the inflation-unemployment tradeoff, based on "frictional growth," describing the interplay between nominal frictions and money growth. When the money supply grows in the presence of price inertia (due to staggered wage contracts with time discounting), the price adjustments to each successive change in the money supply are never able to work themselves out fully. In this context, monetary shocks have a gradual and delayed effect on inflation and these shocks also generate plausible impulse-responses for unemployment. Although our theory contains no money illusion, no permanent nominal rigidities, and no departure from rational expectations, there is a long-run inflation-unemployment tradeoff.
Subjects: 
Inflation
unemployment
Phillips curve
nominal inertia
wage-price staggering
monetary policy
business cycles
forward-looking expectations
JEL: 
J3
E5
E4
E2
E3
Document Type: 
Working Paper

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