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Contracts and Money

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  • Jovanic, Boyan
  • Ueda, Masako

Abstract

Why are contracts not fully indexed? In a setting in which fully indexed contracts are feasible, the authors find that, when price-level data are gathered with delay, these contracts are not renegotiation-proof. The contracts that replace them entail a lower level of welfare for the parties to that contract. They also imply that real variables respond to nominal shocks. Copyright 1997 by the University of Chicago.

Suggested Citation

  • Jovanic, Boyan & Ueda, Masako, 1997. "Contracts and Money," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 700-708, August.
    • Handle: RePEc:ucp:jpolec:v:105:y:1997:i:4:p:700-708
    DOI: 10.1086/262090
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    Cited by:

    1. Quadrini, Vincenzo & Meh, Césaire A. & Terajima, Yaz, 2015. "Limited Nominal Indexation of Optimal Financial Contracts," CEPR Discussion Papers 10330, C.E.P.R. Discussion Papers.
    2. Jones, L.E. & Manuelli, R.E, 1997. "Policy Uncertainty and Informational Monopolies: The Case of Monetary Policy," Working papers 9715, Wisconsin Madison - Social Systems.
    3. Antoine Martin & Cyril Monnet, 2000. "When should labor contracts be nominal?," Working Papers 603, Federal Reserve Bank of Minneapolis.
    4. Young Sik Kim & Manjong Lee, 2011. "Unit of Account, Medium of Exchange, and Prices," Discussion Paper Series 1104, Institute of Economic Research, Korea University.
    5. Yaz Terajima & Vincenzo Quadrini & Cesaire Meh, 2009. "Real Effects of Price Stability with Endogenous Nominal Indexation," 2009 Meeting Papers 847, Society for Economic Dynamics.
    6. Mukerji, Sujoy & Tallon, Jean-Marc, 2004. "Ambiguity aversion and the absence of wage indexation," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 653-670, April.
    7. William (Bill) Zame & Jean-Paul L'Huillier, 2015. "Optimally Sticky Prices," 2015 Meeting Papers 621, Society for Economic Dynamics.
    8. Marvin Goodfriend & Robert G. King, 2001. "The case for price stability," Working Paper 01-02, Federal Reserve Bank of Richmond.
    9. Hajime Tomura, 2019. "Imperfect Contract Enforcement and Nominal Liabilities," Working Papers 1905, Waseda University, Faculty of Political Science and Economics.
    10. Hajime Tomura, 2021. "Nominal contracts and the payment system," The Japanese Economic Review, Springer, vol. 72(2), pages 185-216, April.
    11. Jovanovic, Boyan & Ueda, Masako, 1998. "Stock-Returns and Inflation in a Principal-Agent Economy," Journal of Economic Theory, Elsevier, vol. 82(1), pages 223-247, September.
    12. L’Huillier, Jean-Paul & Zame, William R., 2022. "Optimally sticky prices: Foundations," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    13. Takuya Nakaizumi, 2016. "Hold-up Problem in Price Cap Regulation with Limited Ability of Commitment in High Inflation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 947-953.
    14. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
    15. Patrick Minford & Eric Nowell & Bruce Webb, 2003. "Nominal Contracting and Monetary Targets -- Drifting into Indexation," Economic Journal, Royal Economic Society, vol. 113(484), pages 65-100, January.
    16. Kim, Young Sik & Lee, Manjong, 2017. "Money, unit of account, and nominal rigidity," Economics Letters, Elsevier, vol. 160(C), pages 59-63.

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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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