Sticky Prices, Money and Business Fluctuations
Can nominal contracts make a difference for the neutrality of money if these arise endogenously in general equilibrium? This paper utilizes aversion of Lucas's seminal equilibrium business cycle theory to address this question. However, we depart from Lucas in assuming that (1) agents have complete information about the money stock; (ii) fundamental shocks to the system are purely redistributive and private information; and (iii) moral hazard precludes conventional insurance markets.With an exogenous restriction on contracts, money is fully neutral. But, when this restrictionis lifted, efficient risk-sharing between suppliers and demanders leads to a potential nonneutralitv of money. 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 there is a positive association between money and output.
|Date of creation:||Oct 1983|
|Publication status:||published as Journal of Money, Credit and Banking, Vol. 23, no. 2 (1991): 243-259.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rogerson, Richard & Wright, Randall, 1988. "Involuntary unemployment in economies with efficient risk sharing," Journal of Monetary Economics, Elsevier, vol. 22(3), pages 501-515.
- Sanford J. Grossman & Oliver D. Hart & Eric Maskin, 1982.
"Unemployment with Observable Aggregate Shocks,"
NBER Working Papers
0975, National Bureau of Economic Research, Inc.
- Parkin, Michael, 1986. "The Output-Inflation Trade-off When Prices Are Costly to Change," Journal of Political Economy, University of Chicago Press, vol. 94(1), pages 200-224, February.
- Cooper, Russell, 1988. "Labor contracts and the role of monetary policy in an overlapping generations model," Journal of Economic Theory, Elsevier, vol. 44(2), pages 231-250, April.
- Roger Gordon, 2006. "Editor, Journal of Economic Literature," American Economic Review, American Economic Association, vol. 96(2), pages 510-511, May.
- Gordon, Robert J, 1981.
"Output Fluctuations and Gradual Price Adjustment,"
Journal of Economic Literature,
American Economic Association, vol. 19(2), pages 493-530, June.
- Smith, Bruce D, 1989.
"A Model of Nominal Contracts,"
Journal of Labor Economics,
University of Chicago Press, vol. 7(4), pages 392-414, October.
- Bennett T. McCallum, 1982.
"Macroeconomics after a decade of rational expectations : some critical issues,"
Federal Reserve Bank of Richmond, issue Nov, pages 3-12.
- Bennett T. McCallum, 1982. "Macroeconomics After a Decade of Rational Expectations: Some Critical Issues," NBER Working Papers 1050, National Bureau of Economic Research, Inc.
- Brunner, Karl & Meltzer, Allan H., 1976. "The Phillips curve," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 1-18, January.
- Diamond, Peter A. & Stiglitz, Joseph E., 1974. "Increases in risk and in risk aversion," Journal of Economic Theory, Elsevier, vol. 8(3), pages 337-360, July.
- Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
- Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, vol. 85(1), pages 191-205, February.
- Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January.
- Azariadis, Costas, 1978. "Escalator clauses and the allocation of cyclical risks," Journal of Economic Theory, Elsevier, vol. 18(1), pages 119-155, June.
- Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
- A. Sandmo, 1970. "The Effect of Uncertainty on Saving Decisions," Review of Economic Studies, Oxford University Press, vol. 37(3), pages 353-360.
- Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-1286, September.
- Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
- Gray, Jo Anna, 1976. "Wage indexation: A macroeconomic approach," Journal of Monetary Economics, Elsevier, vol. 2(2), pages 221-235, April.
- Robert G. King & Bharat Trehan, 1983. "The Implications of an Endogenous Money Supply for Monetary Neutrality," NBER Working Papers 1175, National Bureau of Economic Research, Inc.
- Roger E. A. Farmer, 1988. "Money and Contracts," Review of Economic Studies, Oxford University Press, vol. 55(3), pages 431-446.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:1216. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.