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Sticky Prices, Money, and Business Fluctuations

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Author Info
Haubrich, Joseph G
King, Robert G

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Abstract

Can nominal contracts create monetary nonneutrality if they arise endogenously in general equilibrium? They can when (1) agents have complete information about the money stock and (2) shocks to the system are purely redistributive and private information so precluding conventional insurance markets. Without contracts, money is neutral toward aggregate quantities. However, risk-sharing between suppliers and demanders creates mutual gains to using nominal contracts. In particular, if an increase in the money-growth rate signals a rise in the dispersion of shocks to demanders' wealth, then prices adjust only partially to monetary shocks and money is positively associated with output. Copyright 1991 by Ohio State University Press.

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Publisher Info
Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 23 (1991)
Issue (Month): 2 (May)
Pages: 243-59
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Handle: RePEc:mcb:jmoncb:v:23:y:1991:i:2:p:243-59

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  1. Gordon, Robert J, 1981. "Output Fluctuations and Gradual Price Adjustment," Journal of Economic Literature, American Economic Association, vol. 19(2), pages 493-530, June. [Downloadable!] (restricted)
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  2. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September. [Downloadable!] (restricted)
  3. Sandmo, Agnar, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Blackwell Publishing, vol. 37(3), pages 353-60, July. [Downloadable!] (restricted)
  4. Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April. [Downloadable!] (restricted)
  5. Azariadis, Costas, 1978. "Escalator clauses and the allocation of cyclical risks," Journal of Economic Theory, Elsevier, vol. 18(1), pages 119-155, June. [Downloadable!] (restricted)
  6. Smith, B.D., 1988. "A Model Of Nominal Contracts," RCER Working Papers 149, University of Rochester - Center for Economic Research (RCER).
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  7. Farmer, Roger E A, 1988. "Money and Contracts," Review of Economic Studies, Blackwell Publishing, vol. 55(3), pages 431-46, July. [Downloadable!] (restricted)
  8. repec:fip:fedreq:y:1982:i:nov:p:3-12:n:v.68no.6 is not listed on IDEAS
  9. Cooper, Russell, 1988. "Labor contracts and the role of monetary policy in an overlapping generations model," Journal of Economic Theory, Elsevier, vol. 44(2), pages 231-250, April. [Downloadable!] (restricted)
  10. Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 501-515. [Downloadable!] (restricted)
  11. Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January. [Downloadable!] (restricted)
  12. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April. [Downloadable!] (restricted)
  13. Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July. [Downloadable!] (restricted)
  14. Bennett T. McCallum, 1984. "Macroeconomics After a Decade of Rational Expectations: Some Critical Issues," NBER Working Papers 1050, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September. [Downloadable!] (restricted)
  16. Grossman, Sanford J & Hart, Oliver D & Maskin, Eric S, 1983. "Unemployment with Observable Aggregate Shocks," Journal of Political Economy, University of Chicago Press, vol. 91(6), pages 907-28, December. [Downloadable!] (restricted)
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  17. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February. [Downloadable!] (restricted)
  18. Parkin, Michael, 1986. "The Output-Inflation Trade-off When Prices Are Costly to Change," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 200-224, February. [Downloadable!] (restricted)
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  20. Robert G. King & Bharat Trehan, 1983. "The Implications of an Endogenous Money Supply for Monetary Neutrality," NBER Working Papers 1175, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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