AbstractThe real world is characterized by sticky prices in the sense that prices do not respond rapidly to movements in other variables. Typically, one models this property by constructing artificial economies with frictions that prevent price flexibility. This paper constructs a model in which prices are perfectly free to move but, in equilibrium, they do not. The equilibrium mimics many of the observed features of the behavior of money, prices, interest rates, and output over the business cycle. Copyright 1991 by Royal Economic Society.
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Bibliographic InfoPaper provided by UCLA Department of Economics in its series UCLA Economics Working Papers with number 588.
Date of creation: 01 Jan 1990
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