Hostname: page-component-78c5997874-mlc7c Total loading time: 0 Render date: 2024-11-05T19:50:01.912Z Has data issue: false hasContentIssue false

TREND INFLATION, RIGIDITIES, AND HUMAN CAPITAL GROWTH

Published online by Cambridge University Press:  02 August 2018

Adelaida Laguna
Affiliation:
University of Zaragoza
Marcos Sanso*
Affiliation:
University of Zaragoza
*
Address correspondence to: Marcos Sanso, Department of Economic Analysis, Gran Vía 2, 50008 Zaragoza, Spain; e-mail: [email protected].

Abstract

A wage setting process defined in terms of wage per hour is the key factor for obtaining negative optimal trend inflation in a closed economy. However, this inflation will be zero if the process is established on the wage per unit of human capital. The origin of both results is a dynamic mechanism that, with some differences, makes possible the attainment of a situation equivalent to wage flexibility. Finally, while the effect of trend inflation on the long-run growth rate is tiny in the first case, it is much more important in the second, highlighting the relevance of this approach.

Type
Articles
Copyright
© Cambridge University Press 2018

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aghion, P. and Howitt, P. (1992) A model of growth through creative destruction. Econometrica 60 (2), 323351.CrossRefGoogle Scholar
Amano, R., Ambler, S. and Rebei, N. (2007) The macroeconomic effects of nonzero trend inflation. Journal of Money, Credit and Banking 39 (7), 18211838.10.1111/j.1538-4616.2007.00088.xCrossRefGoogle Scholar
Amano, R., Carter, T. and Moran, K. (2012) Inflation and Growth: A New Keynesian Perspective. CIRANO working papers no. 2012s-20, CIRANO.10.2139/ssrn.2115651CrossRefGoogle Scholar
Amano, R., Moran, K., Murchison, S. and Rennison, A. (2009) Trend inflation, wage and price rigidities, and productivity growth. Journal of Monetary Economics 56 (3), 353364.CrossRefGoogle Scholar
Annicchiarico, B., Pelloni, A. and Rossi, L. (2011) Endogenous growth, monetary shocks and nominal rigidities. Economics Letters 113, 103107.CrossRefGoogle Scholar
Annicchiarico, B. and Rossi, L. (2013) Optimal monetary policy in a New Keynesian model with endogenous growth. Journal of Macroeconomics 38, 274285.CrossRefGoogle Scholar
Ascari, G. (2004) Staggered prices and trend inflation: Some nuisances. Review of Economic Dynamics 7, 642667.CrossRefGoogle Scholar
Ascari, G. and Sbordonne, A. (2014) The macroeconomics of trend inflation. Journal of Economic Litterature 52 (3), 679739.CrossRefGoogle Scholar
Basu, S. (1996) Procyclical productivity: Increasing returns or cyclical utilization?. Quarterly Journal of Economics 111, 719751.CrossRefGoogle Scholar
Basu, S. and Fernald, J. G. (1997) Returns to scale in U.S. production: Estimates and implications. Journal of Political Economy 105, 249283.CrossRefGoogle Scholar
Bils, M. and Klenow, P. J. (2004) Some evidence on the importance of sticky prices. Journal of Political Economy 112, 947985.10.1086/422559CrossRefGoogle Scholar
Calvo, G. A. (1983) Staggered prices in a utility-maximizing framework. Journal of Monetary Economics 12 (3), 383398.CrossRefGoogle Scholar
Christiano, L. J., Eichenbaum, M. and Evans, C. L. (2005) Nominal rigidities and the dynamic effects of a shock to monetary policy. Journal of Political Economy 113, 145.CrossRefGoogle Scholar
Erceg, C. J., Henderson, D. W. and Levin, A. T. (2000) Optimal monetary policy with staggered wage and price contracts. Journal of Monetary Economics 46 (2), 281313.CrossRefGoogle Scholar
Gali, J. (2008) Monetary Policy, Inflation, and the Business Cycle: An Introduction to the New Keynesian Framework. Princeton: Princeton University Press.Google Scholar
Gomme, P. (1993) Money and growth revisited. Measuring the costs of inflation in an endogenous growth model. Journal of Monetary Economics 46 (2), 281313.Google Scholar
Hornstein, A. and Wolman, A. L. (2005) Trend inflation, firm-specific capital, and sticky prices. Economic Quarterly 91 (4), 5783.Google Scholar
Huang, K. X. D. and Liu, Z. (2002) Staggered price-setting, staggered wage-setting, and business cycle persistence. Journal of Monetary Economics 49, 405433.CrossRefGoogle Scholar
Laguna, A. and Sanso, M. (2016) Trend inflation, price rigidities and growth with spill-over effects and Schumpeterian R&D. Unpublished manuscript.Google Scholar
Lucas, R. E. (1988) On the mechanics of economic development. Journal of Monetary Economics 22, 342.CrossRefGoogle Scholar
Romer, P. (1986) Increasing returns and long-run growth. Journal of Political Economy 94 (5), 10021037.10.1086/261420CrossRefGoogle Scholar
Romer, P. (1990) Endogenous technological change. Journal of Political Economy 98 (5), S71S102.CrossRefGoogle Scholar
Taylor, J. B. (1980) Aggregate dynamics and staggered contracts. Journal of Political Economy 88 (1), 122.CrossRefGoogle Scholar
Taylor, J. B. (1999) Staggered price and wage setting in macroeconomics. In Taylor, J. B. and Woodford, M. (eds.), Handbook of Macroeconomics, vol. 1 (Part B), pp. 10091050. New York: Elsevier Science B.V. 10.1016/S1574-0048(99)10023-5CrossRefGoogle Scholar
Vaona, A. (2012) Inflation and growth in the long run: A New Keynesian theory and further semiparametric evidence. Macroeconomic Dynamics 16, 94132.CrossRefGoogle Scholar
Woodford, M. (2003) Interest and Prices: Foundations of a Theory of Monetary Policy, Princeton: Princeton University Press.Google Scholar