Journal Article

The Evolution of Inflation and Unemployment: Explaining the Roaring Nineties

Authors

  • Marika Karanassou
  • Hector Sala
  • Dennis J. Snower
Publication Date

This paper analyses the relation between US inflation and unemployment from the perspective of "frictional growth," a phenomenon arising from the interplay between growth and frictions. In particular, we focus on the interaction between money growth and nominal frictions. In this context we show that monetary policy has not only persistent, but permanent real effects, giving rise to a long-run inflation-unemployment tradeoff. We evaluate this tradeoff empirically and assess the impact of productivity, money growth, budget deficit, and trade deficit on the US unemployment and inflation trajectories during the nineties.

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JEL Classification
E24, E31, E51, E62

Key Words

  • inflation dynamics
  • Phillips curve
  • Phillips-Kurve
  • roaring nineties
  • Unemployment dynamics