Stock-Returns and Inflation in a Principal-Agent Economy

Boyan Jovanovic*, Masako Ueda

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

6 Scopus citations


We study a monetary system in which final goods sell on spot markets, while labor and dividends sell through contracts. Firms and workers confuse absolute and relative price changes: A positive price-level shock makes sellers think they are producing better goods than they really are. They split this apparent windfall with workers who get a higher real wage. Hence, unexpected inflation shifts real income from firms (the principals) to workers (the agents), and thereby lowers stock-returns. A predictable money-supply rulestrictlyPareto-dominates random money-supply rules.Journal of Economic LiteratureClassification Numbers: E43, E51.

Original languageEnglish (US)
Pages (from-to)223-247
Number of pages25
JournalJournal of Economic Theory
Issue number1
StatePublished - Sep 1998

ASJC Scopus subject areas

  • Economics and Econometrics


Dive into the research topics of 'Stock-Returns and Inflation in a Principal-Agent Economy'. Together they form a unique fingerprint.

Cite this