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Is Increased Price Flexibility Stabilizing?, J. Bradford Delong, Lawrence Summers
Is Increased Price Flexibility Stabilizing?, J. Bradford Delong, Lawrence Summers
J. Bradford DeLong
This paper uses John Taylor's model of overlapping contracts to show that increased wage and price flexibility can easily be destabilizing because of the Mundell effect. Simulations based on "realistic" parameter values suggest that increases in price flexibility might well increase the cyclical variability of output in the United States.