Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192653 
Year of Publication: 
2012
Series/Report no.: 
Discussion Papers No. 671
Publisher: 
Statistics Norway, Research Department, Oslo
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'.
Subjects: 
AS-AD
equilibrium-correction
imperfect competition
macroeconomics
NAIRU
Phillips curve
unemployment
wage-price spiral.
JEL: 
E24
E30
J50
Document Type: 
Working Paper

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