Title

Expansionary Government Policy in an Economy with Commodity and Labor

Authors

Russell Cooper

Document Type

Discussion Paper

Publication Date

10-1-1984

CFDP Number

727

CFDP Pages

25

Abstract

This paper considers a model in which all exchange is mediated by contracts. The analysis explores the indexation of labor and commodities contracts to observable variations in government spending financed by money creation. In one of the many equilibria, prices and nominal wages are shown to be independent of current money shocks. Except in the extreme equilibrium exhibiting full indexation, policy shocks will generate correlated movements in output and employment over time. The analysis thus suggests an inverse relationship between indexation of contracts and persistence of policy effects.

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