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Money and Business Cycle with One-Period Nominal Contracts

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  • Jang-Ok Cho

Abstract

A modified version of the nominal contract developed by J. A. Gray (1976) and S. Fischer (1977) is introduced in a general equilibrium model with money which has been used in the real business-cycle literature. Money is introduced in the model through cash-in-advance constraint. Two kinds of contracts are examined, namely, a nominal wage contract and a nominal price contract. The nominal wage contract improves the fit of the model in many respects. The nominal price contract increases the output volatility enormously but it has some unrealistic features.

Suggested Citation

  • Jang-Ok Cho, 1993. "Money and Business Cycle with One-Period Nominal Contracts," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 638-659, August.
  • Handle: RePEc:cje:issued:v:26:y:1993:i:3:p:638-59
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jean-Pascal Bénassy, 2006. "Dynamic models with non clearing markets," PSE Working Papers halshs-00590433, HAL.
    2. Collard, Fabrice & Ertz, Guy, 1996. "Stochastic Nominal Wage Contacts in a Cash-in-Advance Model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1997017, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Jul 1997.
    3. Sims, Christopher A. & Zha, Tao, 2006. "Does Monetary Policy Generate Recessions?," Macroeconomic Dynamics, Cambridge University Press, vol. 10(02), pages 231-272, April.
    4. Koenig, Evan F., 1996. "Targeting nominal income: A closer look," Economics Letters, Elsevier, vol. 51(1), pages 89-93, April.
    5. Carlos Borondo, 1994. "La rigidez nominal de los precios de la Nueva Economía Keynesiana: una panorámica," Investigaciones Economicas, Fundación SEPI, vol. 18(2), pages 245-288, May.
    6. Moon, Weh-Sol, 2011. "The Business Cycle with Nominal Contracts and Search Frictions," MPRA Paper 57457, University Library of Munich, Germany, revised 21 Jul 2014.
    7. Kollman, R., 1996. "The Exchange Rate in a Dynamic-Optimizing Current Account Model with Nominal Rigidities: A Quantitative Investigation," Cahiers de recherche 9614, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    8. Boileau, Martin & Normandin, Michel, 2002. "Aggregate employment, real business cycles, and superior information," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 495-520, April.
    9. Bénassy, Jean-Pascal, 2002. "Conférence François-Albert Angers (2002)," L'Actualité Economique, Société Canadienne de Science Economique, vol. 78(4), pages 423-457, Décembre.
    10. Evan F. Koenig, 1995. "Optimal monetary policy in an economy with sticky nominal wages," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 24-31.
    11. Zuzana Janko, 2008. "Nominal Wage Contracts, Labor Adjustment Costs and the Business Cycle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 434-448, April.
    12. Kim, Jinill, 2000. "Constructing and estimating a realistic optimizing model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 329-359, April.
    13. Moon, Weh-Sol, 2011. "Business cycle with nominal contracts and search frictions," MPRA Paper 31716, University Library of Munich, Germany.
    14. Andersen, Torben M., 1998. "Persistency in sticky price models," European Economic Review, Elsevier, vol. 42(3-5), pages 593-603, May.
    15. Jinill Kim, 1998. "Monetary policy in a stochastic equilibrium model with real and nominal rigidities," Finance and Economics Discussion Series 1998-02, Board of Governors of the Federal Reserve System (U.S.).
    16. Jeanne, Olivier, 1998. "Generating real persistent effects of monetary shocks: How much nominal rigidity do we really need?," European Economic Review, Elsevier, vol. 42(6), pages 1009-1032, June.
    17. Zuzana Janko, "undated". "Imperfect Competition, Nominal Wage Contracts and the Business Cycle," Working Papers 2008-16, Department of Economics, University of Calgary, revised 11 Jan 2008.
    18. Bo William Hansen & Lars Mayland Nielsen, "undated". "Can Nominal Wage and Price Rigidities Be Equivalent Propagation Mechanisms? The Case of Open Economics," Economics Working Papers 2002-4, Department of Economics and Business Economics, Aarhus University.
    19. Dale W. Henderson & Jinill Kim, 1998. "The choice of a monetary policy reaction function in a simple optimizing model," International Finance Discussion Papers 601, Board of Governors of the Federal Reserve System (U.S.).
    20. Bruno Chiarini & Paolo Piselli, 2000. "Aggregate Fluctuations In A Unionized Labor Market," Working Papers 2_2000, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.

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