Stock-Returns and Inflation in a Principal-Agent Economy

Boyan Jovanovic, Masako Ueda

    Research output: Contribution to journalArticle

    Abstract

    We study a monetary system in which final goods sell on spot markets, while labor and dividends sell through contracts. Firms and workers confuse absolute and relative price changes: A positive price-level shock makes sellers think they are producing better goods than they really are. They split this apparent windfall with workers who get a higher real wage. Hence, unexpected inflation shifts real income from firms (the principals) to workers (the agents), and thereby lowers stock-returns. A predictable money-supply rulestrictlyPareto-dominates random money-supply rules.Journal of Economic LiteratureClassification Numbers: E43, E51.

    Original languageEnglish (US)
    Pages (from-to)223-247
    Number of pages25
    JournalJournal of Economic Theory
    Volume82
    Issue number1
    DOIs
    StatePublished - Sep 1998

    Fingerprint

    Workers
    Stock returns
    Inflation
    Money supply
    Real wages
    Real income
    Price changes
    Economics
    Seller
    Relative prices
    Windfall
    Dividends
    Spot market
    Price level
    Labor

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Stock-Returns and Inflation in a Principal-Agent Economy. / Jovanovic, Boyan; Ueda, Masako.

    In: Journal of Economic Theory, Vol. 82, No. 1, 09.1998, p. 223-247.

    Research output: Contribution to journalArticle

    Jovanovic, Boyan ; Ueda, Masako. / Stock-Returns and Inflation in a Principal-Agent Economy. In: Journal of Economic Theory. 1998 ; Vol. 82, No. 1. pp. 223-247.
    @article{0262828bd22c43a4b18e2e360c15d429,
    title = "Stock-Returns and Inflation in a Principal-Agent Economy",
    abstract = "We study a monetary system in which final goods sell on spot markets, while labor and dividends sell through contracts. Firms and workers confuse absolute and relative price changes: A positive price-level shock makes sellers think they are producing better goods than they really are. They split this apparent windfall with workers who get a higher real wage. Hence, unexpected inflation shifts real income from firms (the principals) to workers (the agents), and thereby lowers stock-returns. A predictable money-supply rulestrictlyPareto-dominates random money-supply rules.Journal of Economic LiteratureClassification Numbers: E43, E51.",
    author = "Boyan Jovanovic and Masako Ueda",
    year = "1998",
    month = "9",
    doi = "10.1006/jeth.1998.2434",
    language = "English (US)",
    volume = "82",
    pages = "223--247",
    journal = "Journal of Economic Theory",
    issn = "0022-0531",
    publisher = "Academic Press Inc.",
    number = "1",

    }

    TY - JOUR

    T1 - Stock-Returns and Inflation in a Principal-Agent Economy

    AU - Jovanovic, Boyan

    AU - Ueda, Masako

    PY - 1998/9

    Y1 - 1998/9

    N2 - We study a monetary system in which final goods sell on spot markets, while labor and dividends sell through contracts. Firms and workers confuse absolute and relative price changes: A positive price-level shock makes sellers think they are producing better goods than they really are. They split this apparent windfall with workers who get a higher real wage. Hence, unexpected inflation shifts real income from firms (the principals) to workers (the agents), and thereby lowers stock-returns. A predictable money-supply rulestrictlyPareto-dominates random money-supply rules.Journal of Economic LiteratureClassification Numbers: E43, E51.

    AB - We study a monetary system in which final goods sell on spot markets, while labor and dividends sell through contracts. Firms and workers confuse absolute and relative price changes: A positive price-level shock makes sellers think they are producing better goods than they really are. They split this apparent windfall with workers who get a higher real wage. Hence, unexpected inflation shifts real income from firms (the principals) to workers (the agents), and thereby lowers stock-returns. A predictable money-supply rulestrictlyPareto-dominates random money-supply rules.Journal of Economic LiteratureClassification Numbers: E43, E51.

    UR - http://www.scopus.com/inward/record.url?scp=0009166338&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=0009166338&partnerID=8YFLogxK

    U2 - 10.1006/jeth.1998.2434

    DO - 10.1006/jeth.1998.2434

    M3 - Article

    AN - SCOPUS:0009166338

    VL - 82

    SP - 223

    EP - 247

    JO - Journal of Economic Theory

    JF - Journal of Economic Theory

    SN - 0022-0531

    IS - 1

    ER -