Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/324543 
Year of Publication: 
2021
Citation: 
[Journal:] Central European Economic Journal (CEEJ) [ISSN:] 2543-6821 [Volume:] 8 [Issue:] 55 [Year:] 2021 [Pages:] 163-175
Publisher: 
Sciendo, Warsaw
Abstract: 
We show a negative relation between the inflation rate and the unemployment rate, that is, the Phillips curve using a three-period overlapping generations (OLG) model with childhood period and pay-as-you-go pension for older generation under monopolistic competition with negative real balance effect. In a three-period OLG model, there may exist a negative real balance effect because consumers have debts and savings. A fall (or rise) in the nominal wage rate induces a fall (or rise) in the price, then by negative real balance effect, the unemployment rate rises (or falls), and we get a negative relation between the inflation rate and the unemployment rate. This conclusion is based on the premise of utility maximisation of consumers and profit maximisation of firms. Therefore, we present a microeconomic foundation for the Phillips curve. We also examine the effects of fiscal policy financed by seigniorage, which is represented by left-ward shift of the Phillips curve.
Subjects: 
microeconomic foundation
monopolistic competition
negative real balance effect
Phillips curve
a three-period overlapping generations model
JEL: 
E12
E24
E31
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article

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