Skip to Main content Skip to Navigation
Journal articles

Incomplete markets and the output-inflation tradeoff

Abstract : This paper analyses the effects of money shocks on macroeconomic aggregates in a tractable flexible-price, incomplete-markets environment that generates persistent wealth inequalities amongst agents. In this framework, current inflation redistribute wealth from the cash-rich employed to the cash-poor unemployed and induce the former to increase their labour supply in order to maintain their desired levels of consumption and precautionary savings. If the shocks are persistent, however, they also raise inflation expectations and thus deter the employed from saving and supplying labour. We relate the strength of these two inflation taxes to the underlying parameters of the model and study how they compete in determining the overall sign and slope of the implied ‘output–inflation tradeoff’ relation.
Document type :
Journal articles
Complete list of metadata

Cited literature [19 references]  Display  Hide  Download
Contributor : Spire Sciences Po Institutional Repository Connect in order to contact the contributor
Submitted on : Monday, June 29, 2015 - 11:32:20 PM
Last modification on : Tuesday, July 12, 2022 - 3:44:55 AM
Long-term archiving on: : Tuesday, April 25, 2017 - 8:01:20 PM


Files produced by the author(s)




Yann Algan, Edouard Challe, Xavier Ragot. Incomplete markets and the output-inflation tradeoff. Economic Theory, Springer Verlag, 2011, 46 (1), pp.55-84. ⟨10.1007/s00199-009-0499-0⟩. ⟨hal-01169657⟩



Record views


Files downloads