Authors

Russell Cooper

Document Type

Discussion Paper

Publication Date

12-1-1982

CFDP Number

656R

CFDP Revision Date

1984-09-01

CFDP Pages

28

Abstract

This paper extends the optimal labor contracts literature to consider an environment with both real and nominal shocks. In an overlapping generations model, we compare alternative means of trading labor services: spot markets, fixed nominal wage contracts and price-contingent contracts. The ordering of these market structures will depend on the relative variability of the real and nominal shocks and the costs of contingent contracts. We also investigate the role of monetary policy and the circumstances under which feedback rules are neutral. Finally, we show that a non-stochastic monetary policy is optimal.

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