We investigate the link between inflation, growth and unemployment nesting a model of fair wages into one of endogenous growth of learning-by-doing. Firms protect real wages against inflation in exchange of worker's effort. In the long-run, unemployment decreases with higher inflation and real growth rates, though less so as inflation and growth increase. We then derive long-run restrictions for structural VARs for US data and we investigate the short-run behavior of inflation, real growth and unemployment. Structural shocks to inflation reduce unemployment and increase growth; to growth reduce unemployment and leave inflation unaffected; to unemployment produce a stagflation.
Inflation gifts restrictions for structural VARs: evidence from the US
VAONA, Andrea
2015-01-01
Abstract
We investigate the link between inflation, growth and unemployment nesting a model of fair wages into one of endogenous growth of learning-by-doing. Firms protect real wages against inflation in exchange of worker's effort. In the long-run, unemployment decreases with higher inflation and real growth rates, though less so as inflation and growth increase. We then derive long-run restrictions for structural VARs for US data and we investigate the short-run behavior of inflation, real growth and unemployment. Structural shocks to inflation reduce unemployment and increase growth; to growth reduce unemployment and leave inflation unaffected; to unemployment produce a stagflation.
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