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

ISBN-13: 9783540658719 / Angielski / Miękka / 1999 / 228 str.

Jean-Robert Tyran; J. -R Tyran

Opis

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.

Spis treści

Approaches to the Problem of Monetary Neutrality: Empirical Evidence on the Non-Neutrality of Money from Macroeconomic Data.- Theories of Nominal Rigidity and Monetary Non-Neutrality.- Money Illusion.- Why Can Money Illusion and Strategic Complementarity Cause Monetary Non-Neutrality?.- Summary of Part I and Hypotheses.- Experimental Study: Are Experiments in Macroeconomics Possible?.- Experimental Design to Isolate Causes of Monetary Non-Neutrality.- Results of Experimental Study: Non-Neutrality with Strategic Complementarity.- Does Money Illusion Matter?.- The Effects of Strategic Complements and Strategic Substitutes.- Summary of Results.- Discussion of Results: Empirical Relevance of Results.- Implications for Economic Theory and Policy.