Abstract

http://ssrn.com/abstract=227192
 
 

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Is Increased Price Flexibility Stabilizing?


J. Bradford DeLong


University of California, Berkeley; Federal Reserve Bank of San Francisco; National Bureau of Economic Research (NBER)

Lawrence H. Summers


Harvard University; National Bureau of Economic Research (NBER)

1987

NBER Working Paper No. w1686

Abstract:     
This paper uses Taylor's model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing. This result arises because of the Mundell effect. While lower prices increase output, the expectation of falling prices decreases output. Simulations based on realistic parameter values suggest that increases in price flexibility might bell increase the cyclical variability of output in the United States.

Number of Pages in PDF File: 32

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Date posted: June 8, 2004  

Suggested Citation

DeLong, J. Bradford and Summers, Lawrence H., Is Increased Price Flexibility Stabilizing? (1987). NBER Working Paper No. w1686. Available at SSRN: http://ssrn.com/abstract=227192

Contact Information

James Bradford DeLong (Contact Author)
University of California, Berkeley ( email )
Department of Economics
#3880
Berkeley, CA 94720-3880
United States
(510) 643-4027 (Phone)
(510) 642-6615 (Fax)
Federal Reserve Bank of San Francisco
101 Market Street
San Francisco, CA 94105
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Lawrence H. Summers
Harvard University ( email )
1875 Cambridge Street
Cambridge, MA 02138
United States
617-495-1502 (Phone)
617-495-8550 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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