Research Discussion Papers, Bank of Finland
No 31/2003:
The rigidity bias
Risto Herrala ()
Abstract: We study the basic economic problem of choice between
long-term and short-term commitments under a general characterization of
uncertainty (aggregate uncertainty). When contingencies are contractible, a
perfect market of Arrow-Debreau contingent claims implements the social
optimum. When contingencies are not contractible, long-term commitments
receive too much weight in individual portfolios. The economy as a whole is
too rigid during periods of high aggregate shocks. The model links a
rigidity bias with the operation of the price mechanism and the monetary
system.
Keywords: liquidity; central banking; monetary system; (follow links to similar papers)
JEL-Codes: E42; G11; G14; (follow links to similar papers)
34 pages, November 12, 2003
Before downloading any of the electronic versions below
you should read our statement on
copyright.
Download GhostScript
for viewing Postscript files and the
Acrobat Reader for viewing and printing pdf files.
Full text versions of the paper:
0331.pdf 
Download Statistics
Questions (including download problems) about the papers in this series should be directed to Minna Nyman ()
Report other problems with accessing this service to Sune Karlsson ()
or Helena Lundin ().
Programing by
Design by Joachim Ekebom
