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  • Open Daily: 10am - 10pm
    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
Money Illusion and Strategic Complementarity as Causes of Monetary Non-Neutrality

Money Illusion and Strategic Complementarity as Causes of Monetary Non-Neutrality

Tyran, Jean-Robert

Paperback

Series: Lecture Notes in Economic and Mathematical Systems, Book 472

EconomicsInvesting & FinanceMedical Reference

ISBN10: 3540658718
ISBN13: 9783540658719
Publisher: Springer Nature
Published: Jul 15 1999
Pages: 228
Weight: 0.76
Height: 0.51 Width: 6.14 Depth: 9.21
Language: English
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.

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