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Price Contracts, Output, and Monetary Disturbances

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  • Alan C. Stockman

Abstract

This paper presents a simp1e example in which incomplete asset markets create incentives for buyers and sellers to sign contracts that specify a price function which differs from the spot market equilibrium price function. The price function can exhibit downward stickiness in nominal prices, In the sense that a fall in the money supply reduces nominal prices less than proportionately and reduces real output. This equilibrium dominates spot market equilibrium in terms of expected utility.

Suggested Citation

  • Alan C. Stockman, 1986. "Price Contracts, Output, and Monetary Disturbances," NBER Working Papers 1960, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:1960
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    References listed on IDEAS

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    1. Joseph E. Stiglitz, 1984. "Theories of Wage Rigidity," NBER Working Papers 1442, National Bureau of Economic Research, Inc.
    2. Rotemberg, Julio J, 1984. "A Monetary Equilibrium Model with Transactions Costs," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 40-58, February.
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