Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/53836
Authors: 
Meh, Césaire Assah
Quadrini, Vincenzo
Terajima, Yaz
Year of Publication: 
2009
Series/Report no.: 
Bank of Canada Working Paper 2009,16
Abstract: 
We study a model with repeated moral hazard where financial contracts are not fully indexed to inflation because nominal prices are observed with delay as in Jovanovic & Ueda (1997). More constrained firms sign contracts that are less indexed to the nominal price and, as a result, their investment is more sensitive to nominal price shocks. We also find that the overall degree of nominal indexation increases with the uncertainty of the price level. An implication of this is that economies with higher price-level uncertainty are less vulnerable to a price shock of a given magnitude, that is, aggregate investment and output respond to a lesser degree.
Subjects: 
Economic models
Monetary policy framework
Financial markets
Transmission of monetary policy
JEL: 
E21
E31
E44
E52
Document Type: 
Working Paper

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