American Economic Review Vol. 104 No. 3 2014

Does Money Illusion Matter?: Reply

Ernst Fehr¹; Jean-Robert Tyran²

¹ Department of Economics, University of Zurich, Blümlisalpstrasse 10, CH-8006 Zurich, Switzerland (e-mail: ) · ² Department of Economics, University of Vienna, Oskar-Morgenstern-Platz 1, A-1090 Vienna, Austria, and University of Copenhagen (e-mail: )

Abstract

The data in Fehr and Tyran (2001) and Petersen and Winn (2014) show that money illusion plays an important role in nominal price adjustment after a fully anticipated negative monetary shock. Money illusion affects subjects' expectations, and causes pronounced nominal inertia after a negative shock but much less inertia after a positive shock. Thus Petersen and Winn (2014) provide a misleading interpretation of both our and their own data.

DOI

10.1257/aer.104.3.1063

Volume

104

Issue

3

Pages

1063-1071

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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