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The present paper explores the connection between inflation and unemployment in different models with fair wages both in the short and in the long runs. Under customary assumptions regarding the sign of the parameters of the effort function, more inflation lowers the unemployment rate, though to a declining extent. This is because firms respond to...
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Context 1
... the same reasoning above regarding the elasticity of the wage to the unemployment rate we set ( = 0:5: We log-linearize the system around the steady state. The short-run Phillips curve with …xed and varying capital are plotted in Figure 7. The result that higher in ‡ation goes hand in hand with a lower unemployment rate, whose intuition was discussed commenting equation (17), is con…rmed also for the present model. ...
Context 2
... it is possible to see, varying capital implies a ‡atter short run Phillips curve than under …xed capital, given that the boom following a monetary expansion is reinforced by an increase of investments, which rise upon impact by 0.08% 10 . Figure 7 also shows that increasing trend in ‡ation decreases the responsiveness of both the in ‡ation and unemployment rates to a 1% monetary shock. This is consistent with our results above that increasing trend in ‡ation ‡attens the stable arm of the economic system without capital and it can be explained by keeping in mind two facts. ...
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