"We construct a utility-based model of fluctuations, with nominal rigidities and unemployment, and draw its … implications for the unemployment-inflation tradeoff and for the conduct of monetary policy.We proceed in two steps. We first leave … unemployment in the constrained efficient allocation. We then focus on the implications of alternative real wage setting mechanisms …

unemployment rates. The model has two equations in common with the new-Keynesian model; the optimizing IS curve and the policy rule …