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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. Wouter J. den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," Cowles Foundation Discussion Papers 1215, Cowles Foundation for Research in Economics, Yale University.
   
   • 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.
   • Wouter Denhaan & Garey Ramey & Joel Watson, 1999. "FORTRAN code for Liquidity Flows and Fragility of Business Enterprises," QM&RBC Codes 58, Quantitative Macroeconomics & Real Business Cycles.
   • Wouter den Haan & Garey Ramey & Joel Watson, 1999. "Liquidity Flows and Fragility of Business Enterprises," NBER Working Papers 7057, National Bureau of Economic Research, Inc.
   • den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2000. "Liquidity Flows and Fragility of Business Enterprises," University of California at San Diego, Economics Working Paper Series qt2kc182ts, Department of Economics, UC San Diego.
   • den Haan, Wouter J. & Ramey, Garey & Watson, Joel, 2000. "Liquidity Flows and Fragility of business Enterprises," University of California at San Diego, Economics Working Paper Series qt3d899423, Department of Economics, UC San Diego.
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. Marvin J. Barth III & Valerie A. Ramey, 2000. "The Cost Channel of Monetary Transmission," NBER Working Papers 7675, National Bureau of Economic Research, Inc.
   
   • 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.
   • Barth, Marvin J III & Ramey, Valerie A, 2000. "The Cost Channel of Monetary Transmissions," University of California at San Diego, Economics Working Paper Series qt7rm5q9sk, Department of Economics, UC San Diego.
4. Robert G. King & Joseph G. Haubrich, 1983. "Sticky Prices, Money and Business Fluctuations," NBER Working Papers 1216, National Bureau of Economic Research, Inc.
   
   • 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.
   • Joseph G. Haubrich & Robert G. King, 1990. "Sticky prices, money, and business fluctuations," Working Paper 9008, Federal Reserve Bank of Cleveland.
5. Asea, Patrick K. & Blomberg, Brock, 1998. "Lending cycles," Journal of Econometrics, Elsevier, vol. 83(1-2), pages 89-128.
   
   • Patrick K. Asea & S. Brock Blomberg, 1997. "Lending Cycles," NBER Working Papers 5951, National Bureau of Economic Research, Inc.
   • Asea, P.K. & Blomberg, S.B., 1997. "Lending Cycles," Papers 97-01, Wellesley College - Department of Economics.
   • Patrick Asea & S. Brook Blomberg, 1997. "Lending Cycles," UCLA Economics Working Papers 764, UCLA Department of Economics.
6. Edward J. Green & Soo-Nam Oh, 1991. "Contracts, constraints, and consumption," Staff Report 143, Federal Reserve Bank of Minneapolis.
   
   • 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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