Involuntary Unemployment Under Ongoing Nominal Wage Rate Decline in Overlapping Generations Model

Abstract We analyze involuntary unemployment based on consumers’ utility maximization and firms’ profit behavior with ongoing nominal wage rate decline. consider a three-periods overlapping generations (OLG) model childhood period as well younger older periods under monopolistic competition increasing, decreasing or constant returns to scale technology. When there exists unemploymnet, the may examine existenbce of in that mominal decline (or deflation). Even if declines, we have steady state output employment. need budget deficit surplus maintain depending whether real balance effect is positive negative. Also possibility achieve full-employment by fiscal policy.