Discussion Papers,
Statistics Norway, Research Department

Abstract: We derive aggregate supply (AS) relationships for an intermediate-run macro model.The wage-price spiral provides the conceptual framework for a synthesis of different contesting theoretical and empirical perspectives on the AS curve: the Phillips curve model (PCM) and the wage-price equilibrium correction model (WPECM). The generalized AS curve is grafted into a small macro model. We analyze stability conditions, steady states, and dynamic solutions, using a combination of algebra and simulations. The specification of the AS curve, as a PCM or a WPECM, is shown to be important for all aspects of the model's solution, but within each model also the detailed parameterization is of qualitative importance. For example, endogenous cyclical fuctuations are typical for both nominal and real variables, e.g. inflation and unemployment.

Keywords: AS-AD; cycles; dynamics; equilibrium correction; macroeconomics; nominal rigidity; Phillips curve; unemployment; wage-price spiral.

JEL-codes: E24; E30; J50 July 2010

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