Karanassou, Marika; Sala, Hector; Snower, Dennis J. - School of Economics, UNSW Business School - 2008
marginal costs (i.e., unemployment rate, (log) output
gap, or (log) wage share), γ is the "demand sensitivity parameter" (a …
, and (ii) (1−α)P
t
so that απ
t
=(1−α)E
t
π
t+1
+ γx
t
.
5
when x
t
denotes the output gap or the wage share, and negative … substitution since the
production function is assumed to be Cobb-Douglas: y = dl +(1−d)k + ε,wherey is
log output and ε is the …