Title: A Near-Rational Model of the Business Cycle, with Wage and Price Inertia
Abstract:This paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects. The individual loss to agents with inertial price-wage behavio...This paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects. The individual loss to agents with inertial price-wage behavior is second-order in terms of the parameter describing the shock, while the effect on real economic variables is first-order. Thus, significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses.Read More
Publication Year: 1985
Publication Date: 1985-01-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 845
AI Researcher Chatbot
Get quick answers to your questions about the article from our AI researcher chatbot