Long-term contracts, rational expectations and the optimal money supply rule
TL;DR: In this paper, a model with overlapping labor contracts with each labor contract being made for two periods was constructed, and the authors argued that monetary policy has the ability to affect the short run behavior of output, though it has no effects on long run output behavior.
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Abstract: The paper is concerned with the role of monetary policy and argues that activist monetary policy can affect the behavior of real output, rational expectations notwithstanding. A rational expectations model with overlapping labor contracts is constructed, with each labor contract being made for two periods. These contracts inject an element of short-run wage stickiness into the model. Because the money stock is changed by the monetary authority more frequently than labor contracts are renegotiated, and, given the assumed form of the labor contracts, monetary policy has the ability to affect the short-run behavior of output, though it has no effects on long-run output behavior.
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Citations
The Welfare Cost of Permanent Inflation and Optimal Short-Run Economic Policy
TL;DR: In this article, it was shown that a temporary reduction in unemployment causes a permanent increase in inflation, and that the present value of the resulting future welfare costs may well exceed the temporary short-run gain.
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Staggered Price and Trend Inflatio: Someuisances
TL;DR: This article showed that when trend inflation is considered, both the long-run and short-run properties of time dependent staggered price models change dramatically, and it follows that the results obtained by models log-linearised around a zero inflation steady state might be misleading.
Money and the Business Cycle with One-Period Nominal Contracts
TL;DR: A modified version of the nominal contract developed by J. A. Gray (1976) and S. Fischer (1977) is introduced in a general equilibrium model with money which has been used in the real business cycle literature.
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The Transformation of Macroeconomic Policy and Research
TL;DR: 2004 Annual Report Essay: Nobel Lecture by Edward C. Prescott (This abstract was borrowed from another version of this item) as discussed by the authors, and the abstract was used in this article.
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International Evidence on the Sources of Macroeconomic Fluctuations
TL;DR: This paper examined the causes of macroeconomic fluctuations in five economies, Germany, Japan, Sweden, the United Kingdom and the United States using a bivariate VAR model for output and inflation.
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References
The role of monetary policy
Milton Friedman
- 01 Jan 1995
TL;DR: There is wide agreement about the major goals of economic policy: high employment, stable prices, and rapid growth as discussed by the authors.There is less agreement that these goals are mutually compatible or, among those who regard them as incompatible, about the terms at which they can and should be substituted for one another.
Expectations and the neutrality of money
TL;DR: In this article, the authors provide a simple example of an economy in which equilibrium prices and quantities exhibit what may be the central feature of the modern business cycle: a systematic relation between the rate of change in nominal prices and the level of real output.
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The Relation Between Unemployment and the Rate of Change of Money Wage Rates in the United Kingdom, 1861–1957†
TL;DR: The relationship between unemployment and the rate of change of money wage rates is highly non-linear as discussed by the authors, and it is possible that one of the most important factors influencing the change in money wage rate is the level of unemployment.