Expansionary Government Policy in an Economy with Commodity and Labor
AbstractThis paper considers a model in which all exchange is mediated by contracts. The analysis explores the indexation of labor and commodities contracts to observable variations in government spending financed by money creation. In one of the many equilibria, prices and nominal wages are shown to be independent of current money shocks. Except in the extreme equilibrium exhibiting full indexation, policy shocks will generate correlated movements in output and employment over time. The analysis thus suggests an inverse relationship between indexation of contracts and persistence of policy effects.
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Bibliographic InfoPaper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 727.
Length: 24 pages
Date of creation: Oct 1984
Date of revision:
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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA
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- Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
- Russell Cooper, 1984. "Optimal Labor Contracts and the Role of Monetary Policy in an Overlapping Generations Model," Cowles Foundation Discussion Papers 656R, Cowles Foundation for Research in Economics, Yale University.
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