Wage-subsidy policies or demand management are equally effective in stabilizing output about its frictionless level in Fischer-Gray predetermined labor-contracts models. However, if the authorities are also concerned with price variability, the optimal monetary rule is unambiguously superior....

This paper reconsiders the effects of monetary shocks on the nominal interest rate in a standard macroeconomic model. It is determined that, when the policy objective is controlling the money stock, money supply shocks generate a situation of excess demand for money. The positive relationship...