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Mr. Luca A Ricci and Pierpaolo Benigno

1 Introduction This paper introduces downward wage rigidities in a dynamic stochastic general equilibrium model where forward-looking agents optimally set their wages taking into account the future implications of their choices. A closed-form solution for the long-run Phillips curve is derived. The inflation-unemployment trade-off is shown to depend on various factors, and particularly on the extent of macroeconomic volatility. The paper contributes to the argument that modern monetary models may underestimate the benefits of inflation and as such they may

Mr. Luca A Ricci and Pierpaolo Benigno
Wage setters take into account the future consequences of their current wage choices in the presence of downward nominal wage rigidities. Several interesting implications arise. First, a closed-form solution for a long-run Phillips curve relates average unemployment to average wage inflation; the curve is virtually vertical for high inflation rates but becomes flatter as inflation declines. Second, macroeconomic volatility shifts the Phillips curve outward, implying that stabilization policies can play an important role in shaping the trade-off. Third, nominal wages tend to be endogenously rigid also upward, at low inflation. Fourth, when inflation decreases, volatility of unemployment increases whereas the volatility of inflation decreases: this implies a long-run trade-off also between the volatility of unemployment and that of wage inflation.
International Monetary Fund. External Relations Dept.

Corden is one of those economists who rarely, if ever, makes a slip, and this book is no exception. However, the conclusions he comes to based on his Phillips curve model might have to be qualified by the recognition that the inflation-unemployment trade-off is not stable over the longer run, especially not when inflation is protracted and high. Another small correction is that Robert Mundell and Arthur Laffer are not, as Corden suggests, the originators of the notion of a “ratchet effect” operating on domestic prices under floating rates: the argument has been made

International Monetary Fund. European Dept.
This paper focuses on the task that may be more complicated when the adjustment in relative prices is driven by a negative terms of trade (ToT) shock. Two sets of factors are explored: disruptiveness of sudden terms-of-trade driven devaluations and issues related to external demand and access to external markets. The argument that a reduction in commodity prices will unwind the Dutch disease assumes symmetry: since increasing commodity prices drove resources out of the non-commodity tradable sector, decreasing commodity prices and ensuing real depreciation should bring resources back into the nontradable sector. Effectively, this implies that the magnitude of the elasticity of non-commodity exports to the real effective exchange rate (REER) is equal regardless of the direction of the REER movement, and is not affected by the phase of the commodity cycle. Deep linkages between the commodity and non-commodity sectors can prevent the non-commodity tradable sector from taking advance of the depreciation caused by a commodity price shock because such depreciation puts under stress the entire economy.
Mr. Douglas Laxton and Mr. Eswar S Prasad
This paper provides a quantitative exploration of international spillovers of macroeconomic shocks among the major industrial economies. The particular topical example analyzed here concerns the possible effects on the industrial economies of adverse shocks to the current U.S. economic expansion. The potential spillover effects of U.S. shocks to other industrial economies are found to be quite large. Extant economic conditions, particularly the low levels of nominal interest rates and the consequent possibility of liquidity traps in countries such as Japan, could significantly magnify these spillover effects.
Rattan J. Bhatia


Until 1984, the West African Monetary Union (WAMU) consisted of six West African countries- Benin, Burkina Faso, Ivory Coast, Niger, Senegal, and Togo. (Mali withdrew from the Union in 1961 and rejoined in 1984; it is therefore excluded from this analysis, which deals with a period when it was not a member.)

Mr. Christian H. Beddies

with the contracting and the targeting approach Principal agent or time inconsistency problem? Again time inconsistency The inflation bias Introducing the lag effect D. Issues for discussion IV. The Coordination Problem in Fiscal and Monetary Policymaking A. The Inflation unemployment trade-off Early steps Delegation of half demand management B. A Public finance environment Time inconsistency and tax distortions A public debt framework C. Links to the discussion of inflation contracts and targets Taxes, inflation, and the

International Monetary Fund

Measures of the Labor Force, 2008–50 11. Real GDP and Effective Labor Force, 2008–50 12. The Effects of the Welfare Agreement on the Old–Age Dependency Ratio Tables 1. Change in Importance of Immigrant Population, by Age and Educational Attainment 2. Baseline Projections of the Structural Balance, 2008–50 3. Effects of the Welfare Agreement on Fiscal Sustainability, 2008–50 References II. Labor Market Reforms, Changing Demographics, and the Danish NAIRU A. Overview B. An Evolving Inflation–Unemployment Trade–Off C. What May Have Lowered the

International Monetary Fund. European Dept.

Correlations 3. Regressions for Bilateral Regional Per Capita GDP Growth Correlations: Results 4. Federal Transfers in a Simultaneous Equations System 5. Federal Transfers in a Simultaneous Equations System: Results APPENDIX I. Fiscal Federalis—Further Details References PUTTING THE CURVE BACK IN RUSSIA’S PHILIPS CURVE: A TIME-VARYING APPROACH A. Introduction B. Avoid Bivariate Relationship and Adopt Multivariate Structural Model C. Results—How Does the Philips Curve Evolved Over Time? D. Conclusions FIGURES 1. Inflation-Unemployment