This paper investigates the implications of a sticky-wage contracting model that can explain both the decline in wage and price flexibility and the increased stability of the postwar American economy. The reduction in the size of demand shocks in the postwar period has increased agents'...

This paper explores the empirical validity of theoretical channels through which price flexibility may have caused differences in the stability of output in developing and developed countries. The relation between these two variables suggests several principles. Where the size of stochastic...