Sticky prices and indeterminacy

Abstract

<jats:p>The aim of this paper is to analyze the link between price rigidity and indeterminacy. This is done within a cash‐in‐advance economy that is known to exhibit indeterminacy at high degrees of relative risk aversion. My findings show that price stickiness reduces the scope of these sunspot equilibria: to be compatible with indeterminacy, sluggish price adjustment requires degrees of relative risk aversion that prove too high to square with data.</jats:p>