Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247193 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
Working Paper No. 924
Publisher: 
Queen Mary University of London, School of Economics and Finance, London
Abstract: 
This paper builds up a simple New Keynesian model and revisits the relationship between unemployment and inflation in the long-run. It finds that when the labor market is affected by downward nominal wage rigidity, this relationship goes beyond the tradeoff between the first moments of unemployment and inflation provided by the short-run Phillips curve. Higher volatility in inflation raises unemployment at low-frequency. Increased volatility in inflation makes nominal wages more volatile but the rigidity constrains downward adjustments. Unemployment is more likely to increase above the natural level to guarantee the equilibrium in the labor market. The positive long-run co-movement between unemployment and inflation volatility is confirmed when tested using data from OECD countries.
Subjects: 
Unemployment
Inflation Volatility
DNWR
Panel regressions
JEL: 
E24
E31
C23
Document Type: 
Working Paper

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