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  3. American Economic Review
  4. March 2014
  5. Does Money Illusion Matter? Reply

Does Money Illusion Matter? Reply

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Abstract

The data in Fehr and Tyran (FT, 2001) and Luba Petersen and Abel Winn (PW,2013) 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 PW provide a misleading interpretation both of our and their own data.

Citation

Fehr, Ernst, and Jean-Robert Tyran. 2014. "Does Money Illusion Matter? Reply." American Economic Review, 104 (3): 1063-71. DOI: 10.1257/aer.104.3.1063

Additional Materials

JEL Classification

  • C92 Design of Experiments: Laboratory, Group Behavior
  • D83 Search; Learning; Information and Knowledge; Communication; Belief
  • D84 Expectations; Speculations
  • E31 Price Level; Inflation; Deflation
  • E32 Business Fluctuations; Cycles
  • E52 Monetary Policy