Abstract
Increased price flexibility causes temporary output deviations to be eliminated more quickly, but it also makes the effects of inflationary expectations on aggregate demand larger, so it can lead to increased output variability. This trade-off is assessed for an open economy, and only limited support is found for Keynes' concern that increased price flexibility is destabilizing. The dependence of this issue on exchange rate policy, and on alternative specifications for sticky prices, is emphasized.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
