Sticky Prices and Indeterminacy
AbstractThe aim of the present paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash-in-advance economy from which we know that it exhibits indeterminacy at high degrees of relative risk aversion. I find that price stickiness reduces the scope of these sunspot equilibria; sluggish price adjustment requires degrees of relative risk aversion compatible with indeterminacy that prove too high to square with data.
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Bibliographic InfoPaper provided by University of Adelaide, School of Economics in its series School of Economics Working Papers with number 2006-02.
Length: 15 pages
Date of creation: 2006
Date of revision:
cash-in-advance economies; Calvo-pricing; sunspot equilibria;
Other versions of this item:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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