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Optimal Labor Contracts and the Role of Monetary Policy in an Overlapping Generations Model

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  • Russell Cooper

Abstract

This paper extends the optimal labor contracts literature to consider an environment with both real and nominal shocks. In an overlapping generations model, we compare alternative means of trading labor services: spot markets, fixed nominal wage contracts and price-contingent contracts. The ordering of these market structures will depend on the relative variability of the real and nominal shocks and the costs of contingent contracts. We also investigate the role of monetary policy and the circumstances under which feedback rules are neutral. Finally, we show that a non-stochastic monetary policy is optimal.

Suggested Citation

  • Russell Cooper, 1984. "Optimal Labor Contracts and the Role of Monetary Policy in an Overlapping Generations Model," Cowles Foundation Discussion Papers 656R, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:656r
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    File URL: https://cowles.yale.edu/sites/default/files/files/pub/d06/d0656-r.pdf
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    1. Russell Cooper, 1984. "Expansionary Government Policy in an Economy with Commodity and Labor," Cowles Foundation Discussion Papers 727, Cowles Foundation for Research in Economics, Yale University.

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