An Anatomy of the Phillips Curve

Snower, Dennis J.; Karanassou, Marika

doi:10.2139/ssrn.358241

Download This Paper

Open PDF in Browser

Add Paper to My Library

An Anatomy of the Phillips Curve

19 Pages Posted: 12 Dec 2002

See all articles by Dennis J. Snower

Dennis J. Snower

University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Marika Karanassou

University of London, Queen Mary - Department of Economics; Institute for the Study of Labor (IZA)

Date Written: November 2002

Abstract

The paper examines how the long-run inflation-unemployment tradeoff depends on the degree to which wage-price decisions are backward- versus forward-looking. When economic agents, facing time-contingent, staggered nominal contracts, have a positive rate of time preference, the current wage and price levels depend more heavily on past variables (e.g. past wages and prices) than on future variables. Consequently, the long-run Phillips curve becomes downward-sloping and, indeed, quit flat for plausible parameter values. This paper provides an intuitive account of how this long-run Phillips curve arises.

Keywords: Inflation-unemployment Tradeoff, Wage-price Staggering, Monetary Policy, Forward- and Backward-Looking Wage-price Behavior, Traditional and New Phillips Curve

JEL Classification: E2, E3, E5, J3

Suggested Citation: Suggested Citation

Snower, Dennis J. and Karanassou, Marika, An Anatomy of the Phillips Curve (November 2002). Available at SSRN: https://ssrn.com/abstract=358241 or http://dx.doi.org/10.2139/ssrn.358241