MONEY AND THE BUSINESS-CYCLE WITH ONE-PERIOD NOMINAL CONTRACTS

A modified version of the nominal contract developed by Gray (1976) an d Fischer (1977) is introduced in a general equilibrium model with mon ey which has been used in the real business-cycle literature. Money is introduced in the model through cash-in-advance constraint. Two kinds of contracts are examined, namely, a nominal wage contract and a nomi nal price contract. The nominal wage contract improves the fit of the model in many respects. The nominal price contract increases the outpu t volatility enormously, but it has some unrealistic features.