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Title: Sticky Prices and Indeterminacy

Author(s): Mark Weder

Publication Date: March 2006

Keyword(s): Calvo-pricing, cash-in-advance economies and sunspot equilibria

Programme Area(s): International Macroeconomics

Abstract: The aim of the present paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash-in-advance economy from which we know that it exhibits indeterminacy at high degrees of relative risk aversion. I find that price stickiness reduces the scope of these sunspot equilibria: sluggish price adjustment requires degrees of relative risk aversion compatible with indeterminacy that prove too high to square with data.

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Bibliographic Reference

Weder, M. 2006. 'Sticky Prices and Indeterminacy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=5535