Inflation and Unemployment in the Long Run
We study the long-run relation between money (inflation or interest rates) and unemployment. We document positive relationships between these variables at low frequencies. We develop a framework where money and unemployment are modeled using explicit microfoundations, providing a unified theory to analyze labor and goods markets. We calibrate the model and ask how monetary factors account for labor market behavior. We can account for a sizable fraction of the increase in unemployment rates during the 1970s. We show how it matters whether one uses monetary theory based on the search-and-bargaining approach or on an ad hoc cash-in-advance constraint. (JEL E24, E31, E41, E43, E52)
Year of publication: |
2011
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Authors: | Berentsen, Aleksander ; Menzio, Guido ; Wright, Randall |
Published in: |
American Economic Review. - American Economic Association - AEA. - Vol. 101.2011, 1, p. 371-98
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Publisher: |
American Economic Association - AEA |
Saved in:
Online Resource
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