We distinguish and assess three fundamental views of the labor market regarding the movements in unempoyment: (i) the frictionless equilibrium view; (ii) the chain reaction theory, or prolonged adjustment view; and (iii) the hysteresis view. While the frictionless view implies a clear...

This paper offers a reappraisal of the inflation-unemployment tradeoff, based on "frictional growth," describing the interplay between nominal frictions and money growth. When the money supply grows in the presence of price inertia (due to staggered wage contracts with time discounting), the...

This paper provides a critique of the "unemployment invariance hypothesis", according to which the behavior of the labor market ensures that the long-run unemployment rate is independent of the size of the capital stock, productivity and the labor force. Using Solow growth and endogenous growth...

It is commonly asserted that inflation is a jump variable in the New Keynesian Phillips curve, and thus wage-price inertia does not imply inflation inertia. We show that this "inflation flexibility proposition" is highly misleading, relying on the assumption that real variables are exogenous. In...