Nominal Contracts as Behaviour Towards Risk

A. Patrick Minford and Eric Nowell

No 1666, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We look for a theoretical justification of nominal wage contracts in household diversification of risk. We assume it is more costly for households than for firms to use financial markets for this purpose. In a calibrated general equilibrium model we find from stochastic simulation that where nominal shocks have comparable variability to real shocks optimal wage contracts are overwhelmingly nominal, in accordance with general OECD experience.

Keywords: General Equilibrium; Indexing Diversification; Nominal Contracts; Stochastic Simulation (search for similar items in EconPapers)
JEL-codes: O20 O23 (search for similar items in EconPapers)
Date: 1997-08
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