Sticky Prices and Indeterminacy

Mark Weder

No 5535, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: The aim of the present paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash-in-advance economy from which we know that it exhibits indeterminacy at high degrees of relative risk aversion. I find that price stickiness reduces the scope of these sunspot equilibria: sluggish price adjustment requires degrees of relative risk aversion compatible with indeterminacy that prove too high to square with data.

Keywords: Cash-in-advance economies; Sunspot equilibria; Calvo-pricing (search for similar items in EconPapers)
JEL-codes: E31 E32 (search for similar items in EconPapers)
Date: 2006-03
New Economics Papers: this item is included in nep-cba and nep-mac
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Sticky Prices and Indeterminacy (2008)
Journal Article: Sticky Prices and Indeterminacy (2008)
Working Paper: Sticky Prices and Indeterminacy (2006)
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