TY - JOUR
T1 - Stock-Returns and Inflation in a Principal-Agent Economy
AU - Jovanovic, Boyan
AU - Ueda, Masako
N1 - Funding Information:
We thank Yakov Amihud, Will Baumol, Alberto Bisin, and an associate editor for comments, and the NSF and the CV Starr Center at NYU for financial help.
PY - 1998/9
Y1 - 1998/9
N2 - We study a monetary system in which final goods sell on spot markets, while labor and dividends sell through contracts. Firms and workers confuse absolute and relative price changes: A positive price-level shock makes sellers think they are producing better goods than they really are. They split this apparent windfall with workers who get a higher real wage. Hence, unexpected inflation shifts real income from firms (the principals) to workers (the agents), and thereby lowers stock-returns. A predictable money-supply rulestrictlyPareto-dominates random money-supply rules.Journal of Economic LiteratureClassification Numbers: E43, E51.
AB - We study a monetary system in which final goods sell on spot markets, while labor and dividends sell through contracts. Firms and workers confuse absolute and relative price changes: A positive price-level shock makes sellers think they are producing better goods than they really are. They split this apparent windfall with workers who get a higher real wage. Hence, unexpected inflation shifts real income from firms (the principals) to workers (the agents), and thereby lowers stock-returns. A predictable money-supply rulestrictlyPareto-dominates random money-supply rules.Journal of Economic LiteratureClassification Numbers: E43, E51.
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U2 - 10.1006/jeth.1998.2434
DO - 10.1006/jeth.1998.2434
M3 - Article
AN - SCOPUS:0009166338
SN - 0022-0531
VL - 82
SP - 223
EP - 247
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 1
ER -