Job turnover, expectations, and the Phillips Curve

Job turnover makes a wage Phillips Curve less forward-looking, with a smaller coefficient for inflation expectations. Workers discount future wage income with a low discount factor if there is a strong flow of job turnover; this implies that future inflation is discounted more heavily with job turnover. The Phillips Curve flattens both in the short and long run, due to the correlation between output and inflation expectations. The paper then derives the optimal monetary policy: in particular, the price targeting result of the Ramsey policy is violated when there is turnover.