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Title: Nominal Contracts as Behaviour Towards Risk

Author(s): Patrick Minford and Eric Nowell

Publication Date: August 1997

Keyword(s): General Equilibrium, Indexing Diversification, Nominal Contracts and Stochastic Simulation

Programme Area(s): International Macroeconomics

Abstract: We look for a theoretical justification of nominal wage contracts in household diversification of risk. We assume it is more costly for households than for firms to use financial markets for this purpose. In a calibrated general equilibrium model we find from stochastic simulation that where nominal shocks have comparable variability to real shocks optimal wage contracts are overwhelmingly nominal, in accordance with general OECD experience.

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Bibliographic Reference

Minford, P and Nowell, E. 1997. 'Nominal Contracts as Behaviour Towards Risk'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1666