<abstract xmlns="http://www.w3.org/1999/xhtml"><p>It is an important problem to derive negative relation between the unemployment rate and the inflation rate, that is, the Phillips curve without market imperfection. We derive the Phillips curve using an overlapping generations model under monopolistic competition. We consider the effects of exogenous changes in labor productivity. An increase (decrease) in the labor productivity in a period induces a decrease (increase) in the employment, an increase (decrease) in the unemployment rate and a falling (rising) in the price of the goods in the same period. Then, given the price in the previous period the inflation rate falls (rises). This conclusion is based on the premise of utility maximization of consumers and profit maximization of firms. Therefore, we have presented a microeconomic foundation of the Phillips curve.</p></abstract>

It is an important problem to derive negative relation between the unemployment rate and the inflation rate, that is, the Phillips curve without market imperfection. We derive the Phillips curve using an overlapping generations model under monopolistic competition. We consider the effects of exogenous changes in labor productivity. An increase (decrease) in the labor productivity in a period induces a decrease (increase) in the employment, an increase (decrease) in the unemployment rate and a falling (rising) in the price of the goods in the same period. Then, given the price in the previous period the inflation rate falls (rises). This conclusion is based on the premise of utility maximization of consumers and profit maximization of firms. Therefore, we have presented a microeconomic foundation of the Phillips curve.

Microeconomic Foundation of the Phillips Curve

Studia Universitatis Babes-Bolyai Oeconomica

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Microeconomic Foundation of the Phillips Curve"}

It is an important problem to derive negative relation between the unemployment rate and the inflation rate, that is, the Phillips curve without market...

Microeconomic Foundation of the Phillips Curve

Published Online: Dec 31, 2020

Page range: 14 - 26

DOI: https://doi.org/10.2478/subboec-2020-0012

Keywords
Phillips Curve, Microeconomic foundation, Overlapping generations model, Monopolistic competition

© 2020 Yasuhito Tanaka, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Microeconomic Foundation of the Phillips Curve

Published Online: Dec 31, 2020

Page range: 14 - 26

DOI: https://doi.org/10.2478/subboec-2020-0012

KeywordsPhillips Curve, Microeconomic foundation, Overlapping generations model, Monopolistic competition

© 2020 Yasuhito Tanaka, published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
Phillips Curve, Microeconomic foundation, Overlapping generations model, Monopolistic competition