Economists have long argued that loan contracts should be indexed to remove the risks arising from fluctuations in the purchasing power of money: indexation however while eliminating one risk, sustitutes another, arising from fluctuations in relative prices of goods. We present a theoretical...

In a general equilibrium model with money we show that anticipated changes in monetary policy have real effects if markets are incomplete and have no real effects if markets are complete. Unanticipated changes in monetary policy always have real effects.