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ACCELERATING INFLATION OR RISING UNEMPLOYMENT ‐IS THERE AN ALTERNATIVE?
Author(s) -
Vogt Winfried
Publication year - 1996
Publication title -
metroeconomica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.256
H-Index - 29
eISSN - 1467-999X
pISSN - 0026-1386
DOI - 10.1111/j.1467-999x.1996.tb00795.x
Subject(s) - economics , unemployment , inflation (cosmology) , order (exchange) , natural rate of unemployment , full employment , monetary economics , competition (biology) , monetary policy , macroeconomics , misery index , economic stability , keynesian economics , unemployment rate , ecology , physics , finance , biology , theoretical physics
Empirical observations suggest the existence of an unstable inflation‐unemployment trade‐off: whereas high levels of employment generate accelerating inflation rates, stability of the price level seems to require growing rates of unemployment. Under these conditions, macroeconomic policy has to produce countervailing economic fluctuations in order to limit the extent of the two‐sided instability. This is discussed within the framework of a macroeconomic model, in which prices and wages are determined by potential competition, and in which employment depends on monetary demand. The model is confronted with prevailing natural rate theories in which a stable equilibrium rate of employment is determined by supply conditions.