Staggered wage setting is introduced in a dynamic general-equilibrium
monetary model, and the issue of superneutrality of money is addressed.
This paper demonstrates that, in an optimizing framework, a
mild permanent change in the rate of growth of money could have
substantial effects on the steady-state aggregate level of output and
welfare. Previous works fail to reproduce these results because they
consider restrictively simple utility and production functions. The
model exhibits high costs of inflation and provides
a rationale for the pursuit of price stability observed in western countries.
Therefore, in the presence of staggered adjustment, superneutrality of
money proves to be a key issue, which should be taken into account in
any economic model with staggered adjustment.