Abstract
We develop an optimizing model with sticky prices and nominal wages (New Key-nesian model) that is extended to allow a constant rate of technological progress and money growth. We investigate whether a policy trade-off exists between stabilizing employment and curbing inflation in the steady state when the rate of technological change decreases. Tsuzuki and Inoue (2010) showed that if both prices and nominal wage rates per unit of labor are sticky, a policy trade-off exists between stabilizing the welfare-relevant employment gap and curbing inflation. In this chapter, we show that their finding is dependent on the definition of the nominal wage rate; that is, if prices and nominal wage rates per unit of effective labor are sticky, there is no policy trade-off.
| Original language | English |
|---|---|
| Title of host publication | Monetary Policy: Roles, Forecasting and Effects |
| Publisher | Nova Science Publishers, Inc. |
| Pages | 193-214 |
| Number of pages | 22 |
| ISBN (Print) | 9781619421813 |
| Publication status | Published - 2013 |
Keywords
- Money growth
- New keynesian phillips curve
- Sticky price
- Sticky wage
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Social Sciences(all)