This paper presents a simp1e example in which incomplete asset markets create
incentives for buyers and sellers to sign contracts that specify a price
function which differs from the spot market equilibrium price function. The
price function can exhibit downward stickiness in nominal prices, In the
sense that a fall in the money supply reduces nominal prices less than
proportionately and reduces real output. This equilibrium dominates spot
market equilibrium in terms of expected utility.
*Published:
Stockman, Alan C. "Price Contracts, Output, and Monetary Disturbances," from Finance Constraints, Expectations, and Macroeconomics, ed. by Meir Kohnand S.C. Tsiang, Oxford, England: Oxford University Press, 1988.
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