NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Inexorable and Mysterious Tradeoff Between Inflation and Unemployment

N. Gregory Mankiw

NBER Working Paper No. 7884
Issued in September 2000
NBER Program(s):   EFG   ME

This paper discusses the short-run tradeoff between inflation and unemployment. Although this tradeoff remains a necessary building block of business cycle theory, economists have yet to provide a completely satisfactory explanation for it. According to the consensus view among central bankers and monetary economists, a contractionary monetary shock raises unemployment, at least temporarily, and leads to a delayed and gradual fall in inflation. Standard dynamic models of price adjustment, however, cannot explain this pattern of responses. Reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists.

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Document Object Identifier (DOI): 10.3386/w7884

Published: Mankiw, N. Gregory. "The Inexorable And Mysterious Tradeoff Between Inflation And Unemployment," Economic Journal, 2001, v111(471,May), 45-61. citation courtesy of

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