Munich Personal RePEc Archive

Monetary Equilibrium and Price Stickiness: Causes, Consequences and Remedies

Bagus, Philipp and Howden, David (2011): Monetary Equilibrium and Price Stickiness: Causes, Consequences and Remedies. Published in: Review of Austrian Economics , Vol. 4, No. 24 (2011): pp. 383-402.

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Abstract

We reassess 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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