TY - JOUR
T1 - Recent developments in the theory of inflation and unemployment
AU - Gordon, Robert J.
N1 - Funding Information:
*An earlier version of this paper was presented to the Conference on Inflation and Anti-Inflation Policy, sponsored by the International Economics Association at Saltsjobaden, Sweden, in August 1975. That version is being published, together with a summar:’ of the discussion of the paper, in the forthcoming conference volume (Macmillan, London, 1976). The research was sponsored by the National Science Foundation. Important improvements in this version resulted from the suggestions of C. Azariadis, R.J. Barro, K. Brunner, C. Christ, B.M. Friedman, H.T. Grossman, R.E. Hall, H.G. Johnson, A. Rolnick and N. Wallace. ‘For a much more comprehensive approach, see the recent survey by Laidler and Parkin (1975). This paper differs from theirs in its greater emphasis on the causes of unemployment and on microeconomic models of labor-market behavior, and in its relative lack of attention to empirical results, to the detailed specification of econometric wage-price models, and to the costs of inflation. For a more general, shorter, and more readable introduction to the inflation
PY - 1976/4
Y1 - 1976/4
N2 - The paper examines the theoretical literature of the past decade on the causes of inflation and unemployment. The basic theme is the pervasive impact of sluggish price adjustment on the validity and relevance of recent models. The insulation of real output from anticipated monetary changes, derived in the recent rational expectations literature, loses its validity when prices adjust slowly to changes in demand. The search literature explains only part of unemployment when layoffs rather than wage cuts are the major tool of employment adjustment in recessions. The 'new-new' microeconomics of implicit contracts, idiosyncratic exchange, and default penalties is reviewed, as are the implications of sluggish price adjustment for both 'domestic monetarism' and for the monetary approach to balance-of-payments theory.
AB - The paper examines the theoretical literature of the past decade on the causes of inflation and unemployment. The basic theme is the pervasive impact of sluggish price adjustment on the validity and relevance of recent models. The insulation of real output from anticipated monetary changes, derived in the recent rational expectations literature, loses its validity when prices adjust slowly to changes in demand. The search literature explains only part of unemployment when layoffs rather than wage cuts are the major tool of employment adjustment in recessions. The 'new-new' microeconomics of implicit contracts, idiosyncratic exchange, and default penalties is reviewed, as are the implications of sluggish price adjustment for both 'domestic monetarism' and for the monetary approach to balance-of-payments theory.
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U2 - 10.1016/0304-3932(76)90033-7
DO - 10.1016/0304-3932(76)90033-7
M3 - Article
AN - SCOPUS:0043257468
VL - 2
SP - 185
EP - 219
JO - Journal of Monetary Economics
JF - Journal of Monetary Economics
SN - 0304-3932
IS - 2
ER -