We analyze the contractual relation between workers and their employers when there is nominal risk. The key feature of the problem is that the consumption deflator is random and observed sometime after the effort is exerted. The worker's effort is not observable, and to induce the agent to work,...

Why are contracts not fully indexed? In a setting in which fully indexed contracts are feasible, we find that when price-level data are gathered with delay, these contracts are not renegotiation-proof. The contracts that replace them entail a lower level of welfare for the parties to that...