abstract: 'We incorporate inequality aversion into an otherwise standard New

  Keynesian dynamic stochastic equilibrium model with Calvo wage contracts

  and positive inflation. Workers with relatively low incomes experience

  envy, whereas those with relatively high incomes experience guilt. The

  former seek to raise their income and the latter seek to reduce it. The

  greater the inflation rate, the greater the degree of wage dispersion

  under Calvo wage contracts, and thus the greater the degree of envy and

  guilt experienced by the workers. Since the envy effect is stronger than

  the guilt effect, according to the available empirical evidence, a rise

  in the inflation rate leads workers to supply more labor over the

  contract period, generating a significant positive long-run relation

  between inflation and output (and employment), for low inflation rates.

  Provided that wage adjustments are costly, this tradeoff remains

  significant even once the degree of wage stickiness adjusts to the

  inflation rate. This Phillips curve relation, together with an

  inefficient zero-inflation steady state, provides a rationale for a

  positive long-run inflation rate. Given standard calibrations, optimal

  monetary policy is associated with a long-run inflation rate around 2\%.

  (C) 2014 Elsevier B.V. All rights reserved.'
affiliation: 'Ahrens, S (Corresponding Author), Tech Univ Berlin, Str 17 Juni 135,
  D-10623 Berlin, Germany.

  Ahrens, Steffen, Tech Univ Berlin, D-10623 Berlin, Germany.

  Ahrens, Steffen; Snower, Dennis J., Kiel Inst World Econ, D-24105 Kiel, Germany.

  Snower, Dennis J., Univ Kiel, D-24118 Kiel, Germany.

  Snower, Dennis J., CEPR, London, England.

  Snower, Dennis J., IZA, Bonn, Germany.'
author: Ahrens, Steffen and Snower, Dennis J.
author-email: 'steffen.ahrens@tu-berlin.de

  dennis.snower@ifw-kiel.de'
author_list:
- family: Ahrens
  given: Steffen
- family: Snower
  given: Dennis J.
da: '2023-09-28'
doi: 10.1016/j.jebo.2013.12.015
eissn: 1879-1751
files: []
issn: 0167-2681
journal: JOURNAL OF ECONOMIC BEHAVIOR \& ORGANIZATION
keywords: Inflation; Long-run Phillips curve; Fairness; Inequality aversion
keywords-plus: 'LONG-RUN NEUTRALITY; OPTIMAL MONETARY-POLICY; MAINTAINING LOW INFLATION;

  PRICE ADJUSTMENT COSTS; STAGGERED WAGE; INDIVIDUAL SENSE; TREND

  INFLATION; DECISION-MAKING; SOCIAL UTILITY; INTEREST-RATES'
language: English
month: MAR
number-of-cited-references: '138'
pages: 69-84
papis_id: eef68d418a4c40e630863857d8df662d
ref: Ahrens2014envyguilt
times-cited: '6'
title: Envy, guilt, and the Phillips curve
type: Article
unique-id: WOS:000333494300005
usage-count-last-180-days: '0'
usage-count-since-2013: '10'
volume: '99'
web-of-science-categories: Economics
year: '2014'