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Incomplete Markets and the Output-inflation Tradeoff

Yann Algan (), Edouard Challe () and Xavier Ragot ()
Authors registered in the RePEc Author Service: Olivier Allais ()

No 2006 - 45, Sciences Po publications from Sciences Po

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: incomplete markets; borrowing constraints; short-run nonn-eutrality (search for similar items in EconPapers)
JEL-codes: E24 E31 E32 (search for similar items in EconPapers)
Date: 2008-03
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Related works:
Journal Article: Incomplete markets and the output–inflation tradeoff (2011) Downloads
Working Paper: Incomplete markets and the output–inflation tradeoff (2011) Downloads
Working Paper: Incomplete markets and the output-inflation tradeoff (2011)
Working Paper: Incomplete markets and the output–inflation tradeoff (2011) Downloads
Working Paper: Incomplete markets and the output-inflation tradeoff (2008) Downloads
Working Paper: Incomplete Markets and the Output-inflation Tradeoff (2008) Downloads
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