Arato, Hiroki (2008): Long-run relationship between inflation and growth in a New Keynesian framework.
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Abstract
This paper examines the steady-state growth effect of inflation in an endogenous growth model in which the Calvo-type nominal rigidity with endogenous contract duration and monetary friction via wage-payment-in-advance constraint are assumed. On the balanced-growth path in this model, the marginal growth effect of inflation is weakly negative or even positive at low inflation rates because the effect on average markup offsets the negative marginal growth effect through the monetary friction but the growth effect of inflation is negative and convex at higher inflation rates because the frequency of price adjustment approaches that of the flexible-price economy and the growth effect through the nominal rigidity is dominated by the growth effect through the monetary friction. With a plausible calibration of the structural parameters, this model generates a relationship between inflation and growth that is consistent with empirical evidence, especially in industrial countries.
Item Type: | MPRA Paper |
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Original Title: | Long-run relationship between inflation and growth in a New Keynesian framework |
Language: | English |
Keywords: | Inflation and growth; Sticky prices; Endogenous contract duration |
Subjects: | O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O42 - Monetary Growth Models E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level ; Inflation ; Deflation |
Item ID: | 15205 |
Depositing User: | Hiroki Arato |
Date Deposited: | 17 May 2009 00:25 |
Last Modified: | 26 Sep 2019 15:27 |
References: | Bose, Niloy (2002) ``Inflation, the Credit Market, and Economic Growth," Oxford Economic Papers, No. 54, pp. 412–434. Funk, Peter and Bettina Kromen (2006) ``Short-term Price Rigidity in an Endogeneous Growth Model: Non-superneutrality and a Non-vertical Long-term Phillips-curve." Working Paper Series in Economics, No.29. University of Cologne. Gillman, Max and Michal Kejak (2005) ``Contrasting Models of The Effect of Inflation on Growth," Journal of Economic Surveys, Vol. 19, No. 1, pp. 113–136. Hung, Fu-Sheng (2007) ``Non-priductive consumption loans and threshold effects in the inflation-growth relationship," Oxford Economic Papers. forthcoming. Khan, Mohsin S. and Abdelhak S. Senhadji (2001) ``Threshold Effects in the Relationship between Inflation and Growth," IMF Staff Papers, No. 48, pp. 1–21. Kuwahara, Shiro and Nao Sudo (2007) ``Inflation and Growth Revisited." mimeo. Levin, Andrew and Tuck Yun (2007) ``Reconsidering the natural rate hypothesis in a New Keynesian framework," Journal of Monetary Economics, Vol. 54, No. 5, pp. 1344–1365. |
URI: | https://mpra.ub.uni-muenchen.de/id/eprint/15205 |
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Long-run relationship between inflation and growth in a New Keynesian framework. (deposited 08 Nov 2008 15:23)
- Long-run relationship between inflation and growth in a New Keynesian framework. (deposited 17 May 2009 00:25) [Currently Displayed]