A Near-Rational Model of the Business Cycle, with Wage and Price Inertia

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ID: 302256
1985
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Abstract
This paper presents a model in which insignificantly suboptimal behavior causes aggregate demand shocks to have significant real effects. The individual loss to agents with inertial price-wage behavior is second-order in terms of the parameter describing the shock, while the effect on real economic variables is first-order. Thus, significant changes in business activity can be generated by anticipated money supply changes provided that some agents are willing to engage in nonmaximizing behavior which results in small losses.
Reference Key
openalex_W2027059017 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors George A. Akerlof, Janet L. Yellen
Journal the quarterly journal of economics
Year 1985
DOI
10.1093/qje/100.supplement.823
URL
Keywords Keywords not found

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