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Nominal Contracts as Behaviour Towards Risk

Author

Listed:
  • Minford, Patrick
  • Nowell, Eric

Abstract

We look for a theoretical justification of nominal wage contracts in household diversification of risk. We assume it is more costly for households than for firms to use financial markets for this purpose. In a calibrated general equilibrium model we find from stochastic simulation that where nominal shocks have comparable variability to real shocks optimal wage contracts are overwhelmingly nominal, in accordance with general OECD experience.

Suggested Citation

  • Minford, Patrick & Nowell, Eric, 1997. "Nominal Contracts as Behaviour Towards Risk," CEPR Discussion Papers 1666, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:1666
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    More about this item

    Keywords

    General Equilibrium; Indexing Diversification; Nominal Contracts; Stochastic Simulation;
    All these keywords.

    JEL classification:

    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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