TY  - JOUR
AU  - Benigno,Pierpaolo
AU  - Ricci,Luca Antonio
TI  - The Inflation-Unemployment Trade-Off at Low Inflation
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13986
PY  - 2008
Y2  - May 2008
UR  - http://www.nber.org/papers/w13986
L1  - http://www.nber.org/papers/w13986.pdf
N1  - Author contact info:
Pierpaolo Benigno
Dipartimento di Scienze Economiche e Aziendali
Luiss Guido Carli
Viale Romania 32
00197 Rome
ITALY
Tel: 39-0685225-552
E-Mail: pbenigno@luiss.it

Luca A. Ricci
International Monetary Fund
Research Department
700 19th Street, N.W.
Washington, D.C. 20431
E-Mail: lricci@imf.org
AB  - Wage setters take into account the future consequences of their current wage choices in the presence of downward nominal wage rigidities. Several interesting implications arise. First, a closed-form solution for a long-run Phillips curve relates average unemployment to average wage inflation; the curve is virtually vertical for high inflation rates but becomes flatter as inflation declines. Second, macroeconomic volatility shifts the Phillips curve outward, implying that stabilization policies can play an important role in shaping the trade-off. Third, nominal wages tend to be endogenously rigid also upward, at low inflation. Fourth, when inflation decreases, volatility of unemployment increases whereas the volatility of inflation decreases: this implies a long-run trade-off also between the volatility of unemployment and that of wage inflation.
ER  -