I wish to thank Raul Barreto, Michael Burda, Larry Christiano, David Levine, Thomas Lubik, Ludo Renou, Adelaide brown bag eaters, seminar participants at SWIM 2006, at WMD 2006, the Reserve Bank of Australia, EUI, and an anonymous referee for very useful comments.
Sticky Prices and Indeterminacy
Article first published online: 19 JUL 2008
© 2008 The Ohio State University
Journal of Money, Credit and Banking
Volume 40, Issue 5, pages 1073–1082, August 2008
How to Cite
WEDER, M. (2008), Sticky Prices and Indeterminacy. Journal of Money, Credit and Banking, 40: 1073–1082. doi: 10.1111/j.1538-4616.2008.00147.x
- Issue published online: 19 JUL 2008
- Article first published online: 19 JUL 2008
- Received February 1, 2006; and accepted in revised form March 28, 2007.
- cash-in-advance economies;
- Calvo pricing;
- sunspot equilibria
The aim of this paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash-in-advance economy that is known to exhibit indeterminacy at high degrees of relative risk aversion. My findings show that price stickiness reduces the scope of these sunspot equilibria: to be compatible with indeterminacy, sluggish price adjustment requires degrees of relative risk aversion that prove too high to square with data.