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Stock-Returns and Inflation in a Principal-Agent Economy

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  • Jovanovic, Boyan
  • Ueda, Masako

Abstract

We study a monetary in which final goods sell on spot markets, while labor and dividends sell through contracts. Firms and workers confuse absolute and relative price changes: A positive price-level shock makes sellers think they are producing better goods than they really are. They split this apparent windfall with workers who get a higher real wage. Hence, unexpected inflation shifts real income from firms (the principals) to workers (the agents) and thereby lowers stock-returns.
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  • Jovanovic, Boyan & Ueda, Masako, 1998. "Stock-Returns and Inflation in a Principal-Agent Economy," Journal of Economic Theory, Elsevier, vol. 82(1), pages 223-247, September.
    • Handle: RePEc:eee:jetheo:v:82:y:1998:i:1:p:223-247
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    3. Cooley, Thomas F. & Quadrini, Vincenzo, 1999. "A neoclassical model of the Phillips curve relation," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 165-193, October.

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    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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