Is Increased Price Flexibility Stabilizing?
AbstractThis paper uses Taylor's model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing. This result arises because of the Mundell effect. While lower prices increase output, the expectation of falling prices decreases output. Simulations based on realistic parameter values suggest that increases in price flexibility might bell increase the cyclical variability of output in the United States.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1686.
Date of creation: Aug 1985
Date of revision:
Publication status: published as DeLong, T. Bradford and Lawrence H. Summers. "Is Increased Price Flexibility Stabilizing?" American Economic Review, Vol. 76, No. 5, (December 1986),pp. 1031-1044.
Note: EFG ME
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- Taylor, John B, 1980.
"Aggregate Dynamics and Staggered Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 88(1), pages 1-23, February.
- Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Mainstream e teorie economiche critiche. Intervista ad Emiliano Brancaccio sul suo nuovo libro Anti-Blanchard
by keynesblog in Keynes Blog on 2012-07-09 08:42:16
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