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

  • Book
  • © 1999

Overview

Authors:
  1. Jean-Robert Tyran

    1. Department of Economics, University of St. Gallen, St. Gallen, Switzerland

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Part of the book series: Lecture Notes in Economics and Mathematical Systems (LNE, volume 472)

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Table of contents (14 chapters)

  1. Front Matter

    Pages I-X
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  2. Introduction

    1. Introduction

      • Jean-Robert Tyran
      Pages 1-4

  3. Approaches to the Problem of Monetary Non-Neutrality

    1. Front Matter

      Pages 5-8
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    2. Empirical evidence on the non-neutrality of money from macroeconomic data

      • Jean-Robert Tyran
      Pages 9-14

    3. Theories of nominal rigidity and monetary non-neutrality

      • Jean-Robert Tyran
      Pages 15-21

    4. Money illusion

      • Jean-Robert Tyran
      Pages 22-35

    5. Why can money illusion and strategic complementarity cause monetary non-neutrality?

      • Jean-Robert Tyran
      Pages 36-45

    6. Summary of part I and hypotheses

      • Jean-Robert Tyran
      Pages 46-50

  4. Experimental Study

    1. Front Matter

      Pages 51-51
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    2. Are experiments in macroeconomics possible?

      • Jean-Robert Tyran
      Pages 53-59

    3. Experimental design to isolate causes of monetary non-neutrality

      • Jean-Robert Tyran
      Pages 60-78

  5. Results of Experimental Study

    1. Front Matter

      Pages 79-79
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    2. Non-neutrality with strategic complementarity

      • Jean-Robert Tyran
      Pages 81-95

    3. Does money illusion matter?

      • Jean-Robert Tyran
      Pages 96-118

    4. The effects of strategic complements and strategic substitutes

      • Jean-Robert Tyran
      Pages 119-139

    5. Summary of results

      • Jean-Robert Tyran
      Pages 140-143

  6. Discussion of Results

    1. Front Matter

      Pages 145-145
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    2. Empirical relevance of results

      • Jean-Robert Tyran
      Pages 147-158

    3. Implications for economic theory and policy

      • Jean-Robert Tyran
      Pages 159-168

  7. Back Matter

    Pages 169-230
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Keywords

About this book

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.

Authors and Affiliations

  • Department of Economics, University of St. Gallen, St. Gallen, Switzerland

    Jean-Robert Tyran

Bibliographic Information

  • Book Title: Money Illusion and Strategic Complementarity as Causes of Monetary Non-Neutrality

  • Authors: Jean-Robert Tyran

  • Series Title: Lecture Notes in Economics and Mathematical Systems

  • DOI: https://doi.org/10.1007/978-3-642-46883-4

  • Publisher: Springer Berlin, Heidelberg

  • eBook Packages: Springer Book Archive

  • Copyright Information: Springer-Verlag Berlin Heidelberg 1999

  • Softcover ISBN: 978-3-540-65871-9Published: 15 July 1999

  • eBook ISBN: 978-3-642-46883-4Published: 06 December 2012

  • Series ISSN: 0075-8442

  • Series E-ISSN: 2196-9957

  • Edition Number: 1

  • Number of Pages: X, 228

  • Topics: Macroeconomics/Monetary Economics//Financial Economics

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