Optimal contracts and supply-driven recessions

Giacomo Candian and Mikhail Dmitriev

Working Papers from Department of Economics, Florida State University

Abstract: In models with financial frictions, state-contingent contracts stabilize the business cycle relative to contracts with predetermined rates. We show that this finding depends on whether predetermined rates are set in real or nominal terms. State-contingent contracts can amplify supply-driven recessions compared to contracts set in nominal terms.

Keywords: collateral constraints; financial accelerator; financial frictions; optimal contracts (search for similar items in EconPapers)
JEL-codes: C68 E44 E61 (search for similar items in EconPapers)
Pages: 9
Date: 2020-05
New Economics Papers: this item is included in nep-cta, nep-dge and nep-mac
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Journal Article: Optimal contracts and supply-driven recessions (2020)
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