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: Jan 1987
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Note: EFG ME
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- Taylor, John B, 1979. "Staggered Wage Setting in a Macro Model," American Economic Review, American Economic Association, vol. 69(2), pages 108-13, May.
- Taylor, John B, 1980.
"Aggregate Dynamics and Staggered Contracts,"
Journal of Political Economy,
University of Chicago Press, vol. 88(1), pages 1-23, February.
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- 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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