Contracting costs, inflation, and relative price variability
AbstractThis paper provides an analysis of the effect of relative price uncertainty and price level uncertainty on contracting costs. The paper shows that, as relative price uncertainty or price level uncertainty increase, contracts where performance is assured through the posting of a bond become more advantageous than contracts that rely on reputation. Increases in relative price and price level uncertainty make contracting more expensive by increasing the payoff from defaulting on long-term contracts when unfavorable realizations occur. As uncertainty increases, long-term contracting becomes less frequent and reputation plays a smaller role in contracting. Copyright 1993 by Ohio State University Press.
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Bibliographic InfoArticle provided by Federal Reserve Bank of Cleveland in its journal Proceedings.
Volume (Year): (1993)
Issue (Month): ()
Other versions of this item:
- Reagan, Patricia & Stulz, Rene M, 1993. "Contracting Costs, Inflation, and Relative Price Variability," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 585-601, August.
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- Mariano Tommasi, 1993.
"High Inflation: Resource Misallocations and Growth Effects,"
UCLA Economics Working Papers
704, UCLA Department of Economics.
- Mariano Tommasi, 1996. "High inflation: resource misallocations and growth effects," Estudios de Economia, University of Chile, Department of Economics, vol. 23(2 Year 19), pages 157-177, December.
- Ewing, Bradley T. & Seyfried, William L, 2003. "Modeling The Philips Curve: A Time-Varying Volatility Approach," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 3(2).
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