A Neoclassical Model of The Phillips Curve Relation
(joint with Thomas Cooley)
This paper integrates the modern theory of unemployment with
a limited participation model of money and asks whether such a framework
can produce correlations like those associated with the Phillips curve
as well as realistic labor market dynamics. The model incorporates both
monetary and real shocks. The response of the economy to monetary policy
shocks is consistent with recent evidence about the impact of these shocks
on the economy.