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Inflation, Unemployment, and Economic Growth in a Schumpeterian Economy
Ist Teil von
The Scandinavian journal of economics, 2021-07, Vol.123 (3), p.874-909
Ort / Verlag
Oxford: Blackwell Publishing Ltd
Erscheinungsjahr
2021
Link zum Volltext
Quelle
Wiley-Blackwell Journals
Beschreibungen/Notizen
In 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.