Incomplete markets and the output-inflation tradeoff

Yann Algan, Edouard Challe and Xavier Ragot

PSE Working Papers from HAL

Abstract: This paper analyses the effects of money shocks on macroeconomic aggregates in a flexible-price, incomplete-markets environment that generates persistent wealth inequalities amongst agents. In this framework, unexpected money shocks redistribute wealth from the cash-rich employed to the cash-poor unemployed, and induce the former to increase their labour supply in order to maintain their desired levels of consumption and precautionary savings. The reduced-form dynamics of the model is a textbook "output-inflation tradeoff" equation whereby inflation shocks raise current output. The attenuating role of mean inflation and money growth persistence on this non-neutrality tradeoff, as well as some of the welfare implications of wealth redistribution, are also examined.

Keywords: short-run nonneutrality; borrowing constraints; incomplete markets (search for similar items in EconPapers)
Date: 2008-03
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00589134v1
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Incomplete markets and the output–inflation tradeoff (2011)
Working Paper: Incomplete markets and the output-inflation tradeoff (2011)
Working Paper: Incomplete markets and the output-inflation tradeoff (2011)
Working Paper: Incomplete markets and the output-inflation tradeoff (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:psewpa:halshs-00589134

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