Inflation and Unemployment in General Equilibrium
When labor is indivisible, there exist efficient outcomes with some agents randomly unemployed, as in <link rid="b34">Rogerson (1988)</link>. We integrate this idea into the modern theory of monetary exchange, where some trade occurs in centralized markets and some in decentralized markets, as in <link rid="b25">Lagos and Wright (2005)</link>. This delivers a general equilibrium model of unemployment and money, with explicit microeconomic foundations. We show that the implied relation between inflation and unemployment can be positive or negative, depending on simple preference conditions. Our Phillips curve provides a long-run, exploitable, trade-off for monetary policy; it turns out, however, that the optimal policy is the Friedman rule. Copyright The editors of the "Scandinavian Journal of Economics" 2008 .
Year of publication: |
2008
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Authors: | Rocheteau, Guillaume ; Rupert, Peter ; Wright, Randall |
Published in: |
Scandinavian Journal of Economics. - Wiley Blackwell, ISSN 1467-9442. - Vol. 109.2008, 4, p. 837-855
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Publisher: |
Wiley Blackwell |
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