Stabilization Policies and the Information Content of Real Wages
NBER Working Paper No. 1373 (Also Reprint No. r0766)
The purpose of this paper is to compare the behavior of an economy subject to labor contracts with an economy where the labor market clears in an auction manner. Such a comparison is intended to reveal the information content of real wages in a flexible economy. The analysis reveals two distinct costs inflicted by nominal contracts and demonstrates that optimal macro policies can eliminate one of them.
Published: Aizenman, Joshua."Stabilization Policies and the Information Content of Real Wages," Economica, Vol. 53, pp. 181-190, 1986.