Price Contracts, Output, and Monetary Disturbances

Alan Stockman

No 1960, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a simp1e example in which incomplete asset markets create incentives for buyers and sellers to sign contracts that specify a price function which differs from the spot market equilibrium price function. The price function can exhibit downward stickiness in nominal prices, In the sense that a fall in the money supply reduces nominal prices less than proportionately and reduces real output. This equilibrium dominates spot market equilibrium in terms of expected utility.

Date: 1986-06
Note: EFG
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Published as Stockman, Alan C. "Price Contracts, Output, and Monetary Disturbances," from Finance Constraints, Expectations, and Macroeconomics, ed. by Meir Kohnand S.C. Tsiang, Oxford, England: Oxford University Press, 1988.

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