Money Illusion And Strategic Complementarity As Causes Of Monetary Non-neutrality (lecture Notes In Economics And Mathematical Systems)
by Jean-Robert Tyran /
1999 / English / PDF
5.6 MB Download
In principle, money illusion could explain the inertial adjustment
of prices after changes of monetary policy. Hence, money illusion
could provide an explanation of monetary non-neutrality. However,
this explanation has been thoroughly discredited in modern
economics. As a consequence, economists have ever since the 1970s
searched for alternative explanations for nominal rigidity. These
explanations are all based on the assumption of fully rational
economic agents, holding rational expectations. This book argues
that money illusion has been prematurely dismissed as an
explanation of monetary non-neutrality. Methods of experimental
economics are used to investigate the real aggregate effects of
money illusion. It is shown that money illusion in fact causes
(short-run) real income effects if strategic complementarity
prevails. Strategic complementarity is an important characteristic
of naturally occurring macroeconomies and is a recurrent theme in
most models explaining nominal rigidity.
In principle, money illusion could explain the inertial adjustment
of prices after changes of monetary policy. Hence, money illusion
could provide an explanation of monetary non-neutrality. However,
this explanation has been thoroughly discredited in modern
economics. As a consequence, economists have ever since the 1970s
searched for alternative explanations for nominal rigidity. These
explanations are all based on the assumption of fully rational
economic agents, holding rational expectations. This book argues
that money illusion has been prematurely dismissed as an
explanation of monetary non-neutrality. Methods of experimental
economics are used to investigate the real aggregate effects of
money illusion. It is shown that money illusion in fact causes
(short-run) real income effects if strategic complementarity
prevails. Strategic complementarity is an important characteristic
of naturally occurring macroeconomies and is a recurrent theme in
most models explaining nominal rigidity.
