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JOB TURNOVER, TREND GROWTH, AND THE LONG-RUN PHILLIPS CURVE

Published online by Cambridge University Press:  08 April 2016

Dennis J. Snower  and
Mewael F. Tesfaselassie
Dennis J. Snower
Affiliation:
Kiel Institute for the World Economy, Christian-Alberts University, CEPR and IZA
Mewael F. Tesfaselassie*
Affiliation:
Kiel Institute for the World Economy
*
Address correspondence to: Mewael F. Tesfaselassie, Kiel Institute for the World Economy, Kiellinie 66, 24105 Kiel, Germany; e-mail: mewael.tesfaselassie@ifw-kiel.de.
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Abstract

The paper reexamines the long-run Phillips curve in a New Keynesian model with job turnover and trend productivity growth. We show that an increase in money growth has substantial positive effects on steady state output, consumption, and employment in the presence of (i) observed job turnover rates and, if consumption smoothing is sufficiently strong, (ii) observed productive growth rates. Furthermore, we show that the optimal inflation rate is slightly under 2% for reasonable calibrations of job turnover and trend growth.

Keywords

Trend GrowthJob TurnoverNominal InertiaPhillips CurveOptimal Inflation
Type
Articles
Information
Macroeconomic Dynamics , Volume 21 , Issue 4 , June 2017 , pp. 835 - 861
Copyright
Copyright © Cambridge University Press 2016 

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Footnotes

Financial support from the German Science Foundation within the project “Trend Productivity Growth and Labor Market Frictions in a New Keynesian Business Cycle Model” is gratefully acknowledged.

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