Nominal inertia in a competitive model with an incomplete capital market

Torben M. Andersen and Michael Christensen
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Torben M. Andersen: University of Aarhus, Denmark
Michael Christensen: The Aarhus School of Business, Denmark

No 1996031, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: In an intertemporal model with competitive labour and product markets it is shown how nominal inertia with asymmetrical adjustment of nominal wages and prices may arise even though there are no informational asymmetries between the labour and the product markets. As a consequence, nominal shocks can have real effects. Nominal inertia is in the present setting generated by the interplay between incomplete capital markets and an inability of agents to disentangle temporary from permanent shocks.

JEL-codes: E32 E52 (search for similar items in EconPapers)
Pages: 15
Date: 1996-09-01
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