Monetary equilibrium and price stickiness: Causes,consequences and remedies |
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Authors: | Philipp?Bagus Email author" target="_blank">David?HowdenEmail author |
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Institution: | (1) Department of Applied Economics I, Universidad Rey Juan Carlos, Paseo Artilleros s/n., Madrid, 28032, Spain;(2) Department of Business and Economics, St. Louis University–Madrid Campus, Avenida del Valle, 34, Madrid, 28003, Spain |
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Abstract: | We assess monetary equilibrium theory by focusing on its foundation—price stickiness—and answer several ancillary questions.
Prices are sticky at times. Contra monetary equilibrium theorists, this is not a reason to advocate an issuance of fiduciary
media to counteract the effects of a sluggish price adjustment process. Issuances of fiduciary media will breed negative effects,
primarily via wealth redistributions, faulty interest rate signals and exacerbated business cycles. Allowing the price level
to adjust to maintain monetary equilibrium provides for fewer detrimental effects than adjusting the supply of credit. |
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