Money and Business Cycle with One-Period Nominal Contracts

Jang-Ok Cho

Canadian Journal of Economics, 1993, vol. 26, issue 3, 638-59

Abstract: A modified version of the nominal contract developed by J. A. Gray (1976) and S. Fischer (1977) is introduced in a general equilibrium model with money which has been used in the real business-cycle literature. Money is introduced in the model through cash-in-advance constraint. Two kinds of contracts are examined, namely, a nominal wage contract and a nominal price contract. The nominal wage contract improves the fit of the model in many respects. The nominal price contract increases the output volatility enormously but it has some unrealistic features.

Date: 1993
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