Job Turnover, Trend Growth, and the Long-run Phillips Curve

The paper reexamines the long-run Phillips curve in a New Keynesian model with job turnover and trend productivity growth. It shows that (i) job turnover flattens the long-run Phillips curve (a permanent change in the money growth rate has a significantly positive real effects for low inflation rates), (ii) trend productivity growth flattens the long-run Phillips curve if the consumption smoothing motive is sufficiently strong, and (iii) optimal inflation is higher in the presence of job turnover, as job turnover reinforces the effect of trend growth on consumption more than it does on employment.

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