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If anyone is curious, the author of the underlying paper argues that if the demand curve for labor is vertical (inelastic in the short run) that a sudden increa
by jacoblyles 17y ago
If anyone is curious, the author of the underlying paper argues that if the demand curve for labor is vertical (inelastic in the short run) that a sudden increase in desire for work will shift the supply curve out and cause wages to fall, reducing inflation. If nominal interest rates are near zero, a fall in inflation will amount to an increase in real interest rates. Increasing real interest rates reduces aggregate demand for goods and firms reduce their demand for workers in response.
Then a bunch of math is thrown in to make it seem sophisticated enough to get published.
It is an edge-case in a short-run model with carefully tuned parameters. Interesting, but probably not too important. Good blog fodder, though.