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Contracts and Money

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  • Jovanic, Boyan
  • Ueda, Masako

Abstract

Why are contracts not fully indexed? In a setting in which fully indexed contracts are feasible, the authors 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. Copyright 1997 by the University of Chicago.

Suggested Citation

  • Jovanic, Boyan & Ueda, Masako, 1997. "Contracts and Money," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 700-708, August.
    • Handle: RePEc:ucp:jpolec:v:105:y:1997:i:4:p:700-708
    DOI: 10.1086/262090
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    Cited by:

    1. Marvin Goodfriend & Robert G. King, 2001. "The Case for Price Stability," NBER Working Papers 8423, National Bureau of Economic Research, Inc.
    2. Césaire A Meh & Vincenzo Quadrini & Yaz Terajima, 2024. "Limited Nominal Indexation of Optimal Financial Contracts," Journal of the European Economic Association, European Economic Association, vol. 22(2), pages 575-616.
    3. Hajime Tomura, 2021. "Nominal contracts and the payment system," The Japanese Economic Review, Springer, vol. 72(2), pages 185-216, April.
    4. Jones, L.E. & Manuelli, R.E, 1997. "Policy Uncertainty and Informational Monopolies: The Case of Monetary Policy," Working papers 9715, Wisconsin Madison - Social Systems.
    5. Antoine Martin & Cyril Monnet, 2000. "When should labor contracts be nominal?," Working Papers 603, Federal Reserve Bank of Minneapolis.
    6. Young Sik Kim & Manjong Lee, 2011. "Unit of Account, Medium of Exchange, and Prices," Discussion Paper Series 1104, Institute of Economic Research, Korea University.
    7. Mukerji, Sujoy & Tallon, Jean-Marc, 2004. "Ambiguity aversion and the absence of wage indexation," Journal of Monetary Economics, Elsevier, vol. 51(3), pages 653-670, April.
    8. Yaz Terajima & Vincenzo Quadrini & Cesaire Meh, 2009. "Real Effects of Price Stability with Endogenous Nominal Indexation," 2009 Meeting Papers 847, Society for Economic Dynamics.
    9. Jovanovic, Boyan & Ueda, Masako, 1998. "Stock-Returns and Inflation in a Principal-Agent Economy," Journal of Economic Theory, Elsevier, vol. 82(1), pages 223-247, September.
    10. L’Huillier, Jean-Paul & Zame, William R., 2022. "Optimally sticky prices: Foundations," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    11. William (Bill) Zame & Jean-Paul L'Huillier, 2015. "Optimally Sticky Prices," 2015 Meeting Papers 621, Society for Economic Dynamics.
    12. Takuya Nakaizumi, 2016. "Hold-up Problem in Price Cap Regulation with Limited Ability of Commitment in High Inflation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 55(4), pages 947-953.
    13. Hajime Tomura, 2019. "Imperfect Contract Enforcement and Nominal Liabilities," Working Papers 1905, Waseda University, Faculty of Political Science and Economics.
    14. Boyd, John H. & Levine, Ross & Smith, Bruce D., 2001. "The impact of inflation on financial sector performance," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 221-248, April.
    15. Patrick Minford & Eric Nowell & Bruce Webb, 2003. "Nominal Contracting and Monetary Targets -- Drifting into Indexation," Economic Journal, Royal Economic Society, vol. 113(484), pages 65-100, January.
    16. Kim, Young Sik & Lee, Manjong, 2017. "Money, unit of account, and nominal rigidity," Economics Letters, Elsevier, vol. 160(C), pages 59-63.

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    More about this item

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • K10 - Law and Economics - - Basic Areas of Law - - - General (Constitutional Law)
    • K12 - Law and Economics - - Basic Areas of Law - - - Contract Law

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