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Sticky Prices, Money, and Business Fluctuations

  • Haubrich, Joseph G
  • King, Robert G

Can nominal contracts create monetary nonneutrality if they arise endogenously in general equilibrium? They can when (1) agents have complete information about the money stock and (2) shocks to the system are purely redistributive and private information so precluding conventional insurance markets. Without contracts, money is neutral toward aggregate quantities. However, risk-sharing between suppliers and demanders creates mutual gains to using nominal contracts. In particular, if an increase in the money-growth rate signals a rise in the dispersion of shocks to demanders' wealth, then prices adjust only partially to monetary shocks and money is positively associated with output. Copyright 1991 by Ohio State University Press.

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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 23 (1991)
Issue (Month): 2 (May)
Pages: 243-59

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Handle: RePEc:mcb:jmoncb:v:23:y:1991:i:2:p:243-59
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Smith, Bruce D, 1989. "A Model of Nominal Contracts," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 392-414, October.
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