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Vacancies, unemployment and the Phillips curve (2008)
| Venue: | European Economic Review |
| Citations: | 17 - 0 self |
BibTeX
@ARTICLE{Ravenna08vacancies,unemployment,
author = {Federico Ravenna and Carl E. Walsh and Jel E and Ricardo Lagos and Ulf Soderstrom and Martin Uribe and Rob Valletta and John Williams},
title = {Vacancies, unemployment and the Phillips curve},
journal = {European Economic Review},
year = {2008}
}
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Abstract
The canonical new Keynesian Phillips Curve has become a standard component of models designed for monetary policy analysis. However, in the basic new Keynesian model, there is no unemployment, all variation in labor input occurs along the intensive hours margin, and the driving variable for in‡ation depends on workers’ marginal rates of substitution between leisure and consumption. In this paper, we incorporate a theory of unemployment into the new Keynesian theory of in‡ation and empirically test its implications for in‡ation dynamics. We show how a traditional Phillips curve linking in‡ation and unemployment can be derived and how the elasticity of in‡ation with respect to unemployment depends on structural characteristics of the labor market such as the matching technology that pairs vacancies with unemployed workers. We estimate on US data the Phillips curve generated by the model. While we can reject the baseline new Keynesian Phillips curve in favor of the search-frictions speci…cation, we show it is still too stylized to fully describe the dynamics of …rms’marginal costs.
Keyphrases
phillips curve intensive hour margin labor input canonical new keynesian phillips curve unemployed worker traditional phillips curve worker marginal rate basic new keynesian model monetary policy analysis unemployment depends search-frictions speci cation new keynesian theory structural characteristic rms marginal cost ation dynamic labor market driving variable standard component baseline new keynesian phillips curve ation depends
