Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/211964 
Authors: 
Year of Publication: 
2003
Series/Report no.: 
Bank of Finland Discussion Papers No. 31/2003
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We study the basic economic problem of choice between long-term and short-term commitments under a general characterization of uncertainty (aggregate uncertainty).When contingencies are contractible, a perfect market of Arrow-Debreau contingent claims implements the social optimum.When contingencies are not contractible, long-term commitments receive too much weight in individual portfolios.The economy as a whole is too rigid during periods of high aggregate shocks.The model links a rigidity bias with the operation of the price mechanism and the monetary system.
Subjects: 
liquidity
central banking
monetary system
JEL: 
G0
E0
Persistent Identifier of the first edition: 
ISBN: 
952-462-100-2
Document Type: 
Working Paper

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