MONEY AND WAGE CONTRACTS IN AN OPTIMIZING MODEL OF THE BUSINESS-CYCLE

This article presents an explicitly computable business cycle model with optimizing agents in an economy with money and wage contracts. We start from the well-known Long-Plosser-McCallum real business cycle model and extend it in two directions: First, money is introduced, still maintaining the market clearing assumption. Secondly, this monetary model is studied under the assumption of predetermined wages. An explicit solution is given in both cases. It appears that the combination of money and nonclearing markets allows to give a synthetic view between usual 'real business cycles' results and traditional Keynesian ones. We apply it in particular to specify the cyclical properties of real wages and prices.