Sticky Prices and Indeterminacy
AbstractThe aim of the present paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash-in-advance economy from which we know that it exhibits indeterminacy at high degrees of relative risk aversion. I find that price stickiness reduces the scope of these sunspot equilibria: sluggish price adjustment requires degrees of relative risk aversion compatible with indeterminacy that prove too high to square with data.
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Bibliographic InfoPaper provided by Centre for Dynamic Macroeconomic Analysis in its series CDMA Working Paper Series with number 200601.
Date of creation: 15 Feb 2006
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Cash-in-advance economies; Calvo-pricing; sunspot equilibria.;
Other versions of this item:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
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