IDEAS home Printed from https://ideas.repec.org/a/eee/ecmode/v139y2024ics0264999324001366.html
   My bibliography  Save this article

Monetary policy rules and the inequality-augmented Phillips curve

Author

Listed:
  • Rolim, Lilian
  • Carvalho, Laura
  • Lang, Dany

Abstract

Much has been written on the relationship between inflation and unemployment; however, the issue of inequality and the fact that monetary policy has an impact on inequality when attempting to influence these variables is frequently overlooked. By contrast, this paper explores the relationship between inequality, unemployment, and inflation. To do so, we extend the agent-based model of Rolim et al. (2023) and investigate the inflation-unemployment-inequality nexus, which results in the inequality-augmented Phillips curve, linking higher unemployment to lower inflation and higher inequality. We show that the decrease in low-wage workers’ bargaining power may explain the flattening of the Phillips curve and higher income and wage inequalities. In a second experiment, we find that a monetary policy rule prioritizing low inflation rates leads to higher unemployment and inequality. Overall, our results suggest that income inequality should be considered an important monetary policy dimension.

Suggested Citation

  • Rolim, Lilian & Carvalho, Laura & Lang, Dany, 2024. "Monetary policy rules and the inequality-augmented Phillips curve," Economic Modelling, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:ecmode:v:139:y:2024:i:c:s0264999324001366
    DOI: 10.1016/j.econmod.2024.106780
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0264999324001366
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.econmod.2024.106780?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lilian N. Rolim & Carolina Troncoso Baltar & Gilberto Tadeu Lima, 2023. "Income distribution, productivity growth, and workers’ bargaining power in an agent-based macroeconomic model," Journal of Evolutionary Economics, Springer, vol. 33(2), pages 473-516, April.
    2. Philipp Heimberger, 2021. "Do higher public debt levels reduce economic growth?," FMM Working Paper 74-2021, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. Mark Setterfield & Robert A. Blecker, 2022. "Structural change in the US Phillips curve, 1948-2021: the role of power and institutions," FMM Working Paper 75-2022, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    4. William T. Dickens & Lorenz Goette & Erica L. Groshen & Steinar Holden & Julian Messina & Mark E. Schweitzer & Jarkko Turunen & Melanie E. Ward, 2007. "How Wages Change: Micro Evidence from the International Wage Flexibility Project," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 195-214, Spring.
    5. Seppecher, Pascal, 2012. "Flexibility Of Wages And Macroeconomic Instability In An Agent-Based Computational Model With Endogenous Money," Macroeconomic Dynamics, Cambridge University Press, vol. 16(S2), pages 284-297, September.
    6. Patrick Mellacher & Timon Scheuer, 2021. "Wage Inequality, Labor Market Polarization and Skill-Biased Technological Change: An Evolutionary (Agent-Based) Approach," Computational Economics, Springer;Society for Computational Economics, vol. 58(2), pages 233-278, August.
    7. Nicola Gennaioli & Yueran Ma & Andrei Shleifer, 2016. "Expectations and Investment," NBER Macroeconomics Annual, University of Chicago Press, vol. 30(1), pages 379-431.
    8. Dosi, G. & Pereira, M.C. & Roventini, A. & Virgillito, M.E., 2017. "When more flexibility yields more fragility: The microfoundations of Keynesian aggregate unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 162-186.
    9. G. Fagiolo & G. Dosi & R. Gabriele, 2004. "Matching, Bargaining, And Wage Setting In An Evolutionary Model Of Labor Market And Output Dynamics," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 7(02), pages 157-186.
    10. Kim B. Clark & Lawrence H. Summers, 1981. "Demographic Differences in Cyclical Employment Variation," Journal of Human Resources, University of Wisconsin Press, vol. 16(1), pages 61-79.
    11. Gary Solon & Robert Barsky & Jonathan A. Parker, 1994. "Measuring the Cyclicality of Real Wages: How Important is Composition Bias?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(1), pages 1-25.
    12. Mark Setterfield & Ted Lovejoy, 2006. "Aspirations, bargaining power, and macroeconomic performance," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 29(1), pages 117-148.
    13. Dosi, Giovanni & Fagiolo, Giorgio & Napoletano, Mauro & Roventini, Andrea, 2013. "Income distribution, credit and fiscal policies in an agent-based Keynesian model," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1598-1625.
    14. Rowthorn, R E, 1977. "Conflict, Inflation and Money," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 1(3), pages 215-239, September.
    15. Anna Stansbury & Lawrence H. Summers, 2020. "The Declining Worker Power Hypothesis: An Explanation for the Recent Evolution of the American Economy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 51(1 (Spring), pages 1-96.
    16. Dosi, Giovanni & Fagiolo, Giorgio & Roventini, Andrea, 2010. "Schumpeter meeting Keynes: A policy-friendly model of endogenous growth and business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1748-1767, September.
    17. Andreas I. Mueller, 2017. "Separations, Sorting, and Cyclical Unemployment," American Economic Review, American Economic Association, vol. 107(7), pages 2081-2107, July.
    18. Lengnick, Matthias, 2013. "Agent-based macroeconomics: A baseline model," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 102-120.
    19. Chen, Siyan & Desiderio, Saul, 2018. "What moves the Beveridge curve and the Phillips curve: An agent-based analysis," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-30.
    20. Lars E. O. Svensson, 2015. "The Possible Unemployment Cost of Average Inflation below a Credible Target," American Economic Journal: Macroeconomics, American Economic Association, vol. 7(1), pages 258-296, January.
    21. Giorgio Fagiolo & Andrea Roventini, 2017. "Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 20(1), pages 1-1.
    22. Domenico Gatti & Saul Desiderio, 2015. "Monetary policy experiments in an agent-based model with financial frictions," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 265-286, October.
    23. Giri, Federico & Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2019. "Monetary policy and large crises in a financial accelerator agent-based model," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 42-58.
    24. H. Naci Mocan, 1999. "Structural Unemployment, Cyclical Unemployment, and Income Inequality," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 122-134, February.
    25. Stock, James H. & Watson, Mark W., 1999. "Business cycle fluctuations in us macroeconomic time series," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 1, pages 3-64, Elsevier.
    26. Virginia Maestri & Andrea Roventini, 2012. "Inequality and Macroeconomic Factors: A Time-Series Analysis for a Set of OECD Countries," Working Papers 34/2012, University of Verona, Department of Economics.
    27. Luca Riccetti & Alberto Russo & Mauro Gallegati, 2015. "An agent based decentralized matching macroeconomic model," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 305-332, October.
    28. Kydland, Finn E., 1984. "Labor-force heterogeneity and the business cycle," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 21(1), pages 173-208, January.
    29. Marc Lavoie, 2022. "Post-Keynesian Economics," Books, Edward Elgar Publishing, number 19900.
    30. Alessandro Caiani & Alberto Russo & Mauro Gallegati, 2019. "Does inequality hamper innovation and growth? An AB-SFC analysis," Journal of Evolutionary Economics, Springer, vol. 29(1), pages 177-228, March.
    31. Liem Hoang-Ngoc, 2007. "Le fabuleux destin de la courbe de Phillips," Post-Print halshs-00264779, HAL.
    32. Guilmi, Corrado Di & Fujiwara, Yoshi, 2022. "Dual labor market, financial fragility, and deflation in an agent-based model of the Japanese macroeconomy," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 346-371.
    33. Liem Hoang-Ngoc, 2007. "Le fabuleux destin de la courbe de Phillips," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00264779, HAL.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lilian N. Rolim & Carolina Troncoso Baltar & Gilberto Tadeu Lima, 2023. "Income distribution, productivity growth, and workers’ bargaining power in an agent-based macroeconomic model," Journal of Evolutionary Economics, Springer, vol. 33(2), pages 473-516, April.
    2. Taberna, Alessandro & Filatova, Tatiana & Roventini, Andrea & Lamperti, Francesco, 2022. "Coping with increasing tides: Evolving agglomeration dynamics and technological change under exacerbating hazards," Ecological Economics, Elsevier, vol. 202(C).
    3. Dosi, Giovanni & Roventini, Andrea & Russo, Emanuele, 2019. "Endogenous growth and global divergence in a multi-country agent-based model," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 101-129.
    4. Terranova, Roberta & Turco, Enrico M., 2022. "Concentration, stagnation and inequality: An agent-based approach," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 569-595.
    5. Eugenio Caverzasi & Alberto Russo, 2018. "Toward a new microfounded macroeconomics in the wake of the crisis," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 27(6), pages 999-1014.
    6. Giorgio Fagiolo & Andrea Roventini, 2017. "Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 20(1), pages 1-1.
    7. repec:spo:wpmain:info:hdl:2441/46k9rkvut99i7qnn4vqm25t53b is not listed on IDEAS
    8. Dosi, G. & Pereira, M.C. & Roventini, A. & Virgillito, M.E., 2017. "When more flexibility yields more fragility: The microfoundations of Keynesian aggregate unemployment," Journal of Economic Dynamics and Control, Elsevier, vol. 81(C), pages 162-186.
    9. repec:hal:spmain:info:hdl:2441/46k9rkvut99i7qnn4vqm25t53b is not listed on IDEAS
    10. Giovanni Dosi & Andrea Roventini, 2019. "More is different ... and complex! the case for agent-based macroeconomics," Journal of Evolutionary Economics, Springer, vol. 29(1), pages 1-37, March.
    11. Roberto Veneziani & Luca Zamparelli & Corrado Di Guilmi, 2017. "The Agent-Based Approach To Post Keynesian Macro-Modeling," Journal of Economic Surveys, Wiley Blackwell, vol. 31(5), pages 1183-1203, December.
    12. Alessandro Taberna & Tatiana Filatova & Andrea Roventini & Francesco Lamperti, 2021. "Coping with increasing tides: technological change, agglomeration dynamics and climate hazards in an agent-based evolutionary model," LEM Papers Series 2021/44, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    13. Turco, Enrico & Bazzana, Davide & Rizzati, Massimiliano & Ciola, Emanuele & Vergalli, Sergio, 2023. "Energy price shocks and stabilization policies in the MATRIX model," Energy Policy, Elsevier, vol. 177(C).
    14. Giovanni Dosi & Andrea Roventini & Emmanuele Russo, 2020. "Public Policies And The Art Of Catching Up," Working Papers hal-03242369, HAL.
    15. Giovanni Dosi & Andrea Roventini & Emanuele Russo, 2021. "Public policies and the art of catching up: matching the historical evidence with a multicountry agent-based model [Catching up, forging ahead, and falling behind]," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 30(4), pages 1011-1036.
    16. Giovanni Dosi & Andrea Roventini, 2017. "Agent-Based Macroeconomics and Classical Political Economy: Some Italian Roots," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(3), pages 261-283, November.
    17. Dosi, G. & Pereira, M.C. & Roventini, A. & Virgillito, M.E., 2019. "What if supply-side policies are not enough? The perverse interaction of flexibility and austerity," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 360-388.
    18. Bernardo A. Furtado & Miguel A. Fuentes & Claudio J. Tessone, 2019. "Policy Modeling and Applications: State-of-the-Art and Perspectives," Complexity, Hindawi, vol. 2019, pages 1-11, February.
    19. Pascal Seppecher & Isabelle Salle, 2015. "Deleveraging crises and deep recessions: a behavioural approach," Applied Economics, Taylor & Francis Journals, vol. 47(34-35), pages 3771-3790, July.
    20. Dawid, H. & Harting, P. & Neugart, M., 2018. "Cohesion policy and inequality dynamics: Insights from a heterogeneous agents macroeconomic model," Journal of Economic Behavior & Organization, Elsevier, vol. 150(C), pages 220-255.
    21. repec:spo:wpmain:info:hdl:2441/401t6job098n79ch91o9giov9d is not listed on IDEAS
    22. repec:hal:spmain:info:hdl:2441/dcditnq6282sbu1u151qe5p7f is not listed on IDEAS
    23. Dosi, Giovanni & Lamperti, Francesco & Mazzucato, Mariana & Napoletano, Mauro & Roventini, Andrea, 2023. "Mission-oriented policies and the “Entrepreneurial State” at work: An agent-based exploration," Journal of Economic Dynamics and Control, Elsevier, vol. 151(C).
    24. repec:spo:wpmain:info:hdl:2441/dcditnq6282sbu1u151qe5p7f is not listed on IDEAS
    25. Leonardo Ciambezi & Mattia Guerini & Mauro Napoletano & Andrea Roventini, 2023. "Accounting for the Multiple Sources of Inflation: an Agent-Based Model Investigation," GREDEG Working Papers 2023-14, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France, revised Jun 2024.

    More about this item

    Keywords

    Inflation; Unemployment; Inequality; Monetary policy; Bargaining power; Agent-based modelling;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D3 - Microeconomics - - Distribution
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:139:y:2024:i:c:s0264999324001366. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/inca/30411 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.