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Moderate Nominal Rigidity as the Anchor of Stability

In: An Artificial Wicksell—Keynes Macroeconomy

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  • Ichiro Takahashi

    (Chuo University)

Abstract

This chapter further explores in depth the stabilizing role of a moderate degree of nominal rigidity by examining how the macroeconomic stability changes as prices or wages become excessively flexible or rigid. Four destabilizing cases are considered: excessive degree of wage/price flexibility (Sects. 8.1/8.2) and excessive wage/price rigidity (Sects. 8.3/8.4). The discussion on these cases clarifies why a moderate degree of rigidity is required for the stability of AWK economy, which may provide new insights into policy issues such as the macroeconomic impact of minimum wage regulation. Section 8.5 discusses the baseline case and summarizes main findings.

Suggested Citation

  • Ichiro Takahashi, 2021. "Moderate Nominal Rigidity as the Anchor of Stability," Springer Books, in: An Artificial Wicksell—Keynes Macroeconomy, chapter 0, pages 123-129, Springer.
    • Handle: RePEc:spr:sprchp:978-981-16-6839-5_8
    DOI: 10.1007/978-981-16-6839-5_8
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