American Economic Review Vol. 91 No. 5 2001

Does Money Illusion Matter?

Ernst Fehr¹; Jean-Robert Tyran²

¹ Institute for Empirical Research in Economics, University of Zurich, CH-8006 Zurich, Switzerland. · ² Department of Economics, University of St. Gallen, CH-9000 St. Gallen, Switzerland.

Abstract

This paper shows that a small amount of individual-level money illusion may cause considerable aggregate nominal inertia after a negative nominal shock. In addition, our results indicate that negative and positive nominal shocks have asymmetric effects because of money illusion. While nominal inertia is quite substantial and long lasting after a negative shock, it is rather small after a positive shock.

DOI

10.1257/aer.91.5.1239

Volume

91

Issue

5

Pages

1239-1262

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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