By Dr. Jan Gottschalk (auth.)
ISBN-10: 3540256504
ISBN-13: 9783540256502
ISBN-10: 3540376798
ISBN-13: 9783540376798
Having the excessive unemployment in Germany in brain, this publication discusses how macroeconomic thought has advanced during the last 40 years. It indicates that during contemporary years a convergence has taken position, with sleek versions embodying a Keynesian transmission mechanism, monetarist coverage implication, and modeling ideas encouraged by means of new classical economics and genuine enterprise cycle conception. It additionally probes during which course types could be prolonged from right here. Empirically, the publication makes use of diversified econometric suggestions to enquire the relevance and implications of other macroeconomic theories for German info. A key query this publication investigates is the position of call for and provide aspect stipulations for the rise within the German unemployment fee. On a coverage point, the booklet relates the results of different theories to the continuing debate at the applicable roles of call for and provide part regulations for curing the German unemployment problem.
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Extra resources for Monetary Policy and the German Unemployment Problem in Macroeconomic Models: Theory and Evidence
Example text
This model has recently been employed, for example, by the OECD to estimate the NAIRU for several OECD countries. ). ^^ See Gordon (1997: 14). The lag polynomial a{L), for example, denotes a{L) = ao + axL + a2l? +.... + a„L". 1 Keynesian and Monetarist Explanations of Unemployment and Inflation 27 where the term a{L)Apt-\ models the inertia in inflation, D^ is an index of excess demand (normalized so that A = 0 indicates the absence of excess demand), Zf is a vector of supply shock variables (z^ = 0 indicates the absence of supply shocks), and Ct is a serially uncorrelated error term.
9), which treats wages only implicitly, performs better than models with separate wage growth and price markup equations (Gordon 1997: 17). The role of the lag polynomial a{L) is to model the inertia in inflation. This inertia can be due to nominal rigidity, arising for example through multi-period nominal contracts, or to lags in the expectation formation. 9), which models the inflationary pressures arising from excess demand in the economy, usually includes the output gap, yt-y, the unemployment gap, Uf-u, or the capacity utilization rate.
1 Keynesian and Monetarist Explanations of Unemployment and Inflation workers resist reductions in their real wages. It is not obvious why they would be less opposed to a wage cut if it occurs through an increase in inflation. 1) Jw, =/(«,_! ) + 4Pf-'^ The change in current nominal wages, Awf, is still a function of recent rates of unemployment, f{uf^i), as postulated in the traditional Phillips curve, but, in addition, the change in nominal wages depends now on expected inflation, ^f. The sign of the short-run relationship between inflation and unemployment is the same as before, but the transmission mechanism differs: An increase in aggregate demand allows firms to increase their prices, which leads to a higher inflation rate.