TY  - JOUR
AU  - Blinder,Alan S.
AU  - Mankiw,N. Gregory
TI  - Aggregation and Stabilization Policy in a Multi-Contract Economy
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 873
PY  - 1984
Y2  - September 1984
UR  - http://www.nber.org/papers/w0873
L1  - http://www.nber.org/papers/w0873.pdf
N1  - Author contact info:
Alan S. Blinder
Department of Economics
Princeton University
Princeton, NJ 08544-1021
Tel: 609/258-3358
Fax: 609/258-5398
E-Mail: blinder@princeton.edu

N. Gregory Mankiw
Department of Economics
Littauer 223
Harvard University
Cambridge, MA  02138
Tel: 617/495-4301
Fax: 617/495-7730
E-Mail: ngmankiw@fas.harvard.edu
AB  - This paper presents a model of a multi-sector economy in which each sector is characterized by a different type of wage or price stickiness. The various sectors experience the same exogenous shocks and have the same money supply. The analysis shows demand shocks pose no serious problems for stabilization policy. In contrast, supply shocks force the policymaker to choose between stability in one sector and stability in another. The analysis also shows the economy cannot be usefully aggregated into a single sector model. Such an aggregation misleads the economist as to the economy's underlying structure and obscures the tradeoffs the policymaker must confront. In particular, a feedback rule chosen on the basis of an aggregate model could be better or worse than a passive policy.
ER  -