Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/2910 
Year of Publication: 
2002
Series/Report no.: 
IZA Discussion Papers No. 635
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
The paper examines how the long-run inflation-unemployment tradeoff depends on the degree to which wage-price decisions are backward- versus forward-looking. When economic agents, facing time-contingent, staggered nominal contracts, have a positive rate of time preference, the current wage and price levels depend more heavily on past variables (e.g. past wages and prices) than on future variables. Consequently, the long-run Phillips curve becomes downward-sloping and, indeed, quit flat for plausible parameter values. This paper provides an intuitive account of how this long-run Phillips curve arises.
Subjects: 
wage-price staggering
monetary policy
forward- and backward-looking wage-price behavior
traditional and New Phillips curve
inflation-unemployment tradeoff
JEL: 
J3
E2
E3
E5
Document Type: 
Working Paper

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