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Short-term price rigidity in an endogenous growth model: Non-Superneutrality and a non-vertical long-term Phillips-curve

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  • Peter Funk
  • Bettina Kromen

Abstract

This model analyses the interaction between inflation and the long-run levels of employment and output growth in a Schumpeterian growth model with quality improving innovations under nominal price rigidity. At the unique REE steady state equilibrium, both employment and growth are hump-shaped functions of money growth peaking at positive inflation rates. This is due to four effects of money growth under rigidity: Erosion of its relative price through inflation and the optimal initial mark-up set in anticipation of this influence a firm’s profits. Dispersion in relative prices causes inefficient production while the change in the average mark-up influences aggregate demand.

Suggested Citation

  • Peter Funk & Bettina Kromen, 2006. "Short-term price rigidity in an endogenous growth model: Non-Superneutrality and a non-vertical long-term Phillips-curve," Working Paper Series in Economics 29, University of Cologne, Department of Economics.
    • Handle: RePEc:kls:series:0029
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    References listed on IDEAS

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    Cited by:

    1. Angus C. Chu & Ching‐Chong Lai & Chih‐Hsing Liao, 2019. "A Tale of Two Growth Engines: Interactive Effects of Monetary Policy and Intellectual Property Rights," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(7), pages 2029-2052, October.
    2. Derek Zweig, 2020. "Market Power, NAIRU, and the Phillips Curve," Abstract and Applied Analysis, Hindawi, vol. 2020, pages 1-18, December.
    3. Hiroki Arato, 2009. "Long-run relationship between inflation and growth in a New Keynesian framework," Economics Bulletin, AccessEcon, vol. 29(3), pages 1863-1872.

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    More about this item

    Keywords

    Inflation; price rigidity; endogenous growth; employment; long-run Phillips curve;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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