Type
Article
Titre
Incomplete markets and the output–inflation tradeoff
Éditeur
DE : Springer
Volume
46
Numéro
1
Pages
55 - 84 p.
ISSN
09382259
DOI
10.1007/s00199-009-0499-0
Mots clés
Incomplete Markets, Borrowing Constraints, Short-Run Non-Neutrality
Résumé
EN
This paper analyses the effects of money shocks on macroeconomic aggregates in a tractable flexible-price, incomplete-markets environment that generates persistent wealth inequalities amongst agents. In this framework, current inflation 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. If the shocks are persistent, however, they also raise inflation expectations and thus deter the employed from saving and supplying labour. We relate the strength of these two inflation taxes to the underlying parameters of the model and study how they compete in determining the overall sign and slope of the implied ‘output–inflation tradeoff’ relation.
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