Abstract
AbstractIn this paper, we explore the relationship between inflation and unemployment in a monetary Schumpeterian growth model. Under the cash‐in‐advance (CIA) constraint on research and development (R&D), higher inflation reduces innovation and increases unemployment. Under the CIA constraint on consumption, higher inflation also reduces innovation but decreases unemployment instead. Therefore, the two CIA constraints imply drastically different relationships between inflation and unemployment. This theoretical result is consistent with our empirical finding, and it provides a plausible explanation for the mixed empirical results in the literature. Calibrating our model to aggregate data in the United States and the Eurozone, we also explore the relationship between inflation and unemployment quantitatively.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
