Sticky Prices, Money and Business Fluctuations / Robert G. King, Joseph G. Haubrich.

By:

King, Robert G

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w1216.Publication details: Cambridge, Mass. National Bureau of Economic Research 1983.Description: 1 online resource: illustrations (black and white)Subject(s):

E - Macroeconomics and Monetary Economics

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Abstract: 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.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w1216 (Browse shelf(Opens below))	Not For Loan

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October 1983.

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.