Is Increased Price Flexibility Stabilizing?

J. Bradford De Long and Lawrence H. Summers
Authors registered in the RePEc Author Service: James Bradford DeLong ()

No 1686, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper uses Taylor's model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing. This result arises because of the Mundell effect. While lower prices increase output, the expectation of falling prices decreases output. Simulations based on realistic parameter values suggest that increases in price flexibility might bell increase the cyclical variability of output in the United States.

Date: 1987-01
Note: EFG ME
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Journal Article: Is Increased Price Flexibility Stabilizing? (1986)
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