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Sticky Prices and Indeterminacy
Author(s) -
WEDER MARK
Publication year - 2008
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00147.x
Subject(s) - indeterminacy (philosophy) , economics , rigidity (electromagnetism) , risk aversion (psychology) , cash , econometrics , scope (computer science) , microeconomics , mathematical economics , expected utility hypothesis , macroeconomics , computer science , philosophy , structural engineering , engineering , programming language , epistemology
The aim of this paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash‐in‐advance economy that is known to exhibit indeterminacy at high degrees of relative risk aversion. My findings show that price stickiness reduces the scope of these sunspot equilibria: to be compatible with indeterminacy, sluggish price adjustment requires degrees of relative risk aversion that prove too high to square with data.