Most central banks perceive a trade-off between stabilizing inflation and stabilizing the gap between output and desired output. However, the standard new Keynesian framework implies no such trade-off. In that framework, stabilizing inflation is equivalent to stabilizing the welfare-relevant...

In most European countries, the prevailing terms of employment, including the nominal wage, can only be changed by mutual consent. I show that this feature implies that workers have a strategic advantage in the wage negotiations when they try to prevent a cut in nominal wages. If inflation is so...

Three models of price and wage behavior are estimated and tested in this paper. Model 1 is one in which the long-run trade-off between unemployment and inflation is in terms of price levels; Model 2 is one in which the trade-off is in terms of rates of change; and Model 3 is one in which there is...

Wage setters take into account the future consequences of their current wage choices in the presence of downward nominal wage rigidities. Several interesting implications arise. First, a closed-form solution for a long-run Phillips curve relates average unemployment to average wage inflation;...

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.lt;brgt;lt;brgt;We proceed in two steps. We first leave nominal rigidities aside. We show that,...

Expanding on an approach suggested by Ashenfelter (1984), we extend the Phillips curve to an open economy and exploit panel data to estimate the textbook 'expectations augmented' Phillips curve with a market-based and observable measure of inflation expectations. We develop this measure using...

The paper specifies a disequilibrium model for the aggregate labor market consisting of demand and supply functions for labor, an adjustment equation for wages as well as for prices, a transactions equation and, finally, an equation that relates measured unemployment to vacancies and to excess...

Using quarterly macro data and annual state panel data, we examine various explanations of the low rate of price inflation, strong real wage growth, and low rate of unemployment in the U.S. economy during the late 1990s. Many of these explanations imply shifts in the coefficients of price and...

The standard New Keynesian model with staggered wage setting is shown to imply a simple dynamic relation between wage inflation and unemployment. Under some assumptions, that relation takes a form similar to that found in empirical applications-starting with the original Phillips (1958)...

We extend Farmer's (2012b) Monetary (FM) Model in three ways. First, we derive an analog of the Taylor Principle and we show that it fails in U.S. data. Second, we use the fact that the model displays dynamic indeterminacy to explain the real effects of nominal shocks. Third, we use the fact the...