Sticky Prices and Indeterminacy
The aim of this paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash-in-advance economy that is known to exhibit indeterminacy at high degrees of relative risk aversion. My findings show that price stickiness reduces the scope of these sunspot equilibria: to be compatible with indeterminacy, sluggish price adjustment requires degrees of relative risk aversion that prove too high to square with data. Copyright (c) 2008 The Ohio State University.
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Volume (Year): 40 (2008)
Issue (Month): 5 (08)
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