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Sticky Prices, Money, and Business Fluctuations

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  • Haubrich, Joseph G
  • King, Robert G

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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Bibliographic 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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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Robert J. Gordon, 1981. "Output Fluctuations and Gradual Price Adjustment," NBER Working Papers 0621, National Bureau of Economic Research, Inc.
  2. 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.
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  17. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
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