Expected Inflation and Output Variability in Flexible Price and Contracting Models

Giancarlo Marini and Pasquale Scaramozzino

Oxford Economic Papers, 1992, vol. 44, issue 2, 232-41

Abstract: This paper proves that the variability of output over the business cycle can be exacerbated due to the expected inflation effect even in new classical models with fully flexible prices. The authors also consider a variant of Fischer's rational expectations model with overlapping wage contracts. Their analytical results support the view that higher wage flexibility may increase the asymptotic variance of real output. Copyright 1992 by Royal Economic Society.

Date: 1992
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