Does Money Illusion Matter? Reply
- (pp. 1063-71)
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.104.3.1063Additional 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