Aggregate Dynamics and Staggered Contracts

@article{Taylor1980AggregateDA,
  title={Aggregate Dynamics and Staggered Contracts},
  author={John B. Taylor},
  journal={Journal of Political Economy},
  year={1980},
  volume={88},
  pages={1 - 23}
}
Staggered wage contracts as short as 1 year are shown to be capable of generating the type of unemployment persistence which has been observed during postwar business cycles in the United States. A contract multiplier causes business cycles to persist beyond the length of the longest contract, and a diffusion of shocks across contracts causes the persistence to increase for several periods before diminishing. A persistence of inflation is also generated by the contracts. This persistence is… Expand
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