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Expected Inflation and Output Variability in Flexible Price and Contracting Models

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  • Marini, Giancarlo
  • Scaramozzino, Pasquale

Abstract

This paper proves that the variability of output over the business cycle can be exacerbated due to the expected inflation effect even in new classical models with fully flexible prices. The authors also consider a variant of Fischer's rational expectations model with overlapping wage contracts. Their analytical results support the view that higher wage flexibility may increase the asymptotic variance of real output. Copyright 1992 by Royal Economic Society.

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  • Marini, Giancarlo & Scaramozzino, Pasquale, 1992. "Expected Inflation and Output Variability in Flexible Price and Contracting Models," Oxford Economic Papers, Oxford University Press, vol. 44(2), pages 232-241, April.
    • Handle: RePEc:oup:oxecpp:v:44:y:1992:i:2:p:232-41
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