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Money and Contracts

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  • Farmer, Roger E A

Abstract

This paper presents a novel interpretation of the fact that high nominal interest rates accompany low levels of real GNP. It constructs a model in which mon ey and bonds are both held as a result of legal restrictions on the b anking system. Open market operations may increase the equilibrium ra te of interest and raise the cost of credit. This increase in the cos t of credit causes firms to write labor contracts in which layoffs oc cur more frequently. The nature of optimal labor contracts is derived explicitly from assumptions about the information that is available to firms and to workers. Copyright 1988 by The Review of Economic Studies Limited.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of Economic Studies.

Volume (Year): 55 (1988)
Issue (Month): 3 (July)
Pages: 431-46

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Handle: RePEc:bla:restud:v:55:y:1988:i:3:p:431-46

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Cited by:
  1. den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2003. "Liquidity flows and fragility of business enterprises," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1215-1241, September.
  2. Jean-Olivier Hairault & Frédérique Bec, 1993. "Taux d'intérêt, politique monétaire et activité économique en France : un examen empirique," Économie et Prévision, Programme National Persée, vol. 109(3), pages 13-24.
  3. Haubrich, Joseph G & King, Robert G, 1991. "Sticky Prices, Money, and Business Fluctuations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 243-59, May.
  4. Patrick Asea & S. Brook Blomberg, 1997. "Lending Cycles," UCLA Economics Working Papers 764, UCLA Department of Economics.
  5. Marvin J. Barth III & Valerie A. Ramey, 2002. "The Cost Channel of Monetary Transmission," NBER Chapters, in: NBER Macroeconomics Annual 2001, Volume 16, pages 199-256 National Bureau of Economic Research, Inc.
  6. Green, Edward J & Oh, Soo-Nam, 1991. "Contracts, Constraints and Consumption," Review of Economic Studies, Wiley Blackwell, vol. 58(5), pages 883-99, October.

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