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Combining the Beveridge and the Phillips Curve into an Integrative Model: The Modified Output Gap

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  • Friedrich L. Sell

    (Bundeswehr University Munich Fakultat WOW, Institut f¨¹r Recht und ?konomie der globalen Wirtschaft,GERMANY)

Abstract

We present a new theoretical concept: modified output gap (MOG), based on the Phillips and on the Beveridge curve. Both of these pillars are derived analytically and combined with each other, revealing the explicit positive relationship between the vacancy ratio and the inflation rate. It is shown how a deterioration in the matching process on the labor market leads to shifts in both curves, but also in the MOG. This indicates that a loss in the efficiency of matching in the labor market, when combined with an increase of the demand in the markets for goods will push up inflation. As a result, a sort of second ¡°policy ineffectiveness lemma¡± emerges: at high levels of mismatch, expansive measures of monetary and/or fiscal policies will lead to higher inflation in the first place with little (positive) repercussions on the real side of the economy.

Suggested Citation

  • Friedrich L. Sell, 2016. "Combining the Beveridge and the Phillips Curve into an Integrative Model: The Modified Output Gap," Review of Economics & Finance, Better Advances Press, Canada, vol. 6, pages 1-12, May.
    • Handle: RePEc:bap:journl:160201
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    References listed on IDEAS

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    Cited by:

    1. Pérez Trujillo, Manuel & Ruesga Benito, Santos & Sell, Friedrich L., 2018. ""Mismatch" in the labor market and inflation: An integrative model with lessons from the Spanish experience," Working Papers in Economics 2018,4, Bundeswehr University Munich, Economic Research Group.

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    More about this item

    Keywords

    Mismatch; Modified output gap; Macroeconomic policy; Unemployment; Inflation;
    All these keywords.

    JEL classification:

    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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