Contracts and Money
New York University - Department of Economics
University of Wisconsin, Madison - School of Business; Centre for Economic Policy Research (CEPR)
JOURNAL OF POLITICAL ECONOMY, Vol. 105, No. 4 (August 1997)
Why are contracts not fully indexed? In a setting in which fully indexed contracts are feasible, we find that when price-level data are gathered with delay, these contracts are not renegotiation-proof. The contracts that replace them entail a lower level of welfare for the parties to that contract. They also imply that real variables respond to nominal shocks.
JEL Classification: D82, D39, E24Accepted Paper Series
Date posted: September 1, 1997
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