Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 06/2010: Macroeconomic Stability or Cycles? The Role of the Wage-price Spiral
Dag Kolsrud and Ragnar Nymoen ()
Additional contact information
Dag Kolsrud: Statistics Norway, Postal: Statistics Norway, Pb 8131 Dep, NO-0033 Oslo
Ragnar Nymoen: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
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 fluctuations 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
44 pages, May 1, 2010
Full text files
Memo-06-2010.pdf
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