Publication

Job turnover, expectations, and the Phillips Curve

Charles Cosme Henri Dennery
2019
Working Papers

Abstract

Job turnover makes a wage Phillips Curve less forward-looking, with a smaller coefficient for inflation expectations. Workers discount future wage income with a low discount factor if there is a strong flow of job turnover; this implies that future inflation is discounted more heavily with job turnover. The Phillips Curve flattens both in the short and long run, due to the correlation between output and inflation expectations. The paper then derives the optimal monetary policy: in particular, the price targeting result of the Ramsey policy is violated when there is turnover.

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https://infoscience.epfl.ch/entities/publication/f7c07830-8d12-4e19-8e93-a80c2eaa64f1

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Charles Cosme Henri Dennery
2019
Working Papers

Abstract

Official source

https://infoscience.epfl.ch/entities/publication/f7c07830-8d12-4e19-8e93-a80c2eaa64f1

About this result

Related concepts (24)

Inflation targeting

In macroeconomics, inflation targeting is a monetary policy where a central bank follows an explicit target for the inflation rate for the medium-term and announces this inflation target to the public. The assumption is that the best that monetary policy can do to support long-term growth of the economy is to maintain price stability, and price stability is achieved by controlling inflation. The central bank uses interest rates as its main short-term monetary instrument.

Inflation

In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money. The opposite of inflation is deflation, a decrease in the general price level of goods and services. The common measure of inflation is the inflation rate, the annualized percentage change in a general price index.

Phillips curve

The Phillips curve is an economic model, named after William Phillips, that predicts a correlation between reduction in unemployment and increased rates of wage rises within an economy. While Phillips himself did not state a linked relationship between employment and inflation, this was a trivial deduction from his statistical findings. Paul Samuelson and Robert Solow made the connection explicit and subsequently Milton Friedman and Edmund Phelps put the theoretical structure in place.

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