Monetary Policy and the NAIRU in a New-Keynesian New-Growth Model

In New Keynesian models, temporary nominal shocks, like cost push shocks (tempo-rary upward shift of the Philips Curve), generally do not have very persistent e¤ects on employment. This paper introduces endogenous growth along the lines of Romers famous learning by doing mechanism into a New Keynesian general equilibrium model in order to contribute to the explanation of medium run increases in unemployment and the NAIRU like those observed in continental Europe since the middle of the 1970s. It examines the e¤ects of a cost push shock lasting for two years. Substantial e¤ects (between 1 and 4 percentage points) on employment persist for 50 to 300 quar-ters while ination stops falling very soon: The NAIRU increases Furthermore, there is a trade-o ¤ between faster disination and long-term e¤ects on unemployment. Acknowledgement 1 I would like to thank Andrew Hughes-Hallett and Charles Nolan for helpful discussions. All remaining errors are of course my own. Fur-thermore, I am grateful for generous \u85nancial support which I am receiving from th