Nominal and Real Rigidities and the Persistence of Output Fluctuations.

This Paper Shows That Evidence of a Unit Root in Gnp Can Be Consistent with a Contract-Based Approach to Business Cycles Unlike Previous Attempts on the Persistence of Output Fluctuations in Models with Nominal Rigidities, It Is Shown That a Shift From a Situation of Weak Or Moderate Nominal Wage Rigidity to One of Strong Nominal Wage Rigidity Dramatically Reduces the Amount of Real Wage Rigidity Required to Produce a Near Random Walk Behavior in Gnp. the Two Important Implications Are 1. That the Possibility of a Quasi-Unit Root in U.S. Gnp Due to Contract Staggering Is Considerably More Likely and 2. That the Unit Root Result Can Be Consistent with Many Different Experiences of Countries in Terms of Their Respective Degrees of Nominal and Real Wage Rigidities and of Monetary Accomodation.