This paper provides quantitative estimates of the welfare costs of nominal wage contracts. We find that the welfare costs of such contracts are fairly small and are generally relatively insensitive to changes in the economic environment. We then study how contract length might respond to changes...

The business cycle implications of optimal wage indexation are investigated in a dynamic general equilibrium model with wage contracts. As in Gray's seminal contribution on wage indexation, it is shown that the optimal degree of indexation depends on the relative volatilities of monetary and...

We use a dynamic general equilibrium model to obtain quantitative estimates of the welfare costs of nominal wage contracts. We find that the welfare costs of such contracts can vary quite a bit depending on the degree of indexation, the size and persistence of money supply uncertainty and the...

This is a survey of the main business cycle models that have been developed since the early '80s. It emphasizes the incorporation of money in the neoclassical growth model. It argues that money contributes substantially to aggregate fluctuations only if nominal rigidities are introduced in the...

A modified version of the nominal contract developed by Gray (1976) and Fischer (1977) is introduced in a general equilibrium model with money which has been used in the real business cycle literature. Money is introduced in the model through cash-in-advance constraint. The contract studied is...

We introduce procyclical labor and capital utilization, as well as costs of rapidly increasing employment, into a business-cycle model. Plausible variations in factor utilization enable us to explain observed variability of real GNP with considerably smaller economy-wide disturbances. The costs...