Is Increased Price Flexibility Stabilizing?

This paper uses Taylor's model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing. This result arises because of the Mundell effect. While lower prices increase output, the expectation of falling prices decreases output. Simulations based on realistic parameter values suggest that increases in price flexibility might bell increase the cyclical variability of output in the United States.

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Year of publication:	1985-08
Authors:	Summers, Lawrence H. ; Long, J. Bradford De
Institutions:	National Bureau of Economic Research (NBER)

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Extent:	application/pdf
Series:	NBER Working Papers.
Type of publication:	Book / Working Paper
Notes:	EFG ME published as DeLong, T. Bradford and Lawrence H. Summers. "Is Increased Price Flexibility Stabilizing?" American Economic Review, Vol. 76, No. 5, (December 1986),pp. 1031-1044. Number 1686
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005830834