ISBN: 3-540-65871-8
TITLE: Money Illusion and Strategic Complementarity as Causes of Monetary Non-Neutrality
AUTHOR: Tyran, Jean-Robert
TOC:

Introduction 1
Part I
Approaches to the Problem of Monetary Non-Neutrality 5
Chapter 1: Empirical evidence on the non-neutrality of money from macroeconomic data 9
1.1. Selected evidence on the (non-)neutrality of money 10
1.2. Problems of empirical work in monetary macroeconomics 12
A) Mismeasurement in macroeconomic aggregates
B) Problems of isolating causalities
Chapter 2: Theories of nominal rigidity and monetary non-neutrality 15
2.1. Explaining monetary non-neutrality and nominal rigidity by assuming that all agents are fully rational 16
2.2. Explaining monetary non-neutrality by assuming that some agents are not fully rational 20
Chapter 3: Money illusion 22
3.1. The psychology behind money illusion 25
3.2. Potential relevance of money illusion to economics 28
A) Money illusion as a disequilibrating force B) Labor markets
C) Further areas where money illusion may be of economic relevance
Chapter 4: Why can money illusion and strategic complementarity cause monetary non-neutrality? 36
A) Bounded rationality and monetary non-neutrality
B) Money illusion and strategic properties
Chapter 5: Summary of part I and hypotheses 46
5.1. Summary 46
5.2. Hypotheses 48
Part II
Experimental Study 51
Chapter 1: Are experiments in macroeconomics possible? 53
A) What is experimental economics?
B) What is an experimental design?
C) Macroeconomics as an indirectly experimental science
Chapter 2: Experimental design to isolate causes of monetary non-neutrality 60
2.1. General description of the experimental design 60
2.2. Experimental procedures and parameters 62
2.3. Description of treatments 66
2.3.1. Variation of representation 66
A) Real representation
B) Semi-real representation
C) Nominal representation
2.3.2. Variation of the strategic property 72
2.4. Advantages of the present experimental design in the investigation of monetary non-neutrality 76
Part III
Results of Experimental Study 79
Chapter 1: Non-neutrality with strategic complementarity 81
A) Nominal rigidity
B) Monetary non-neutrality
C) Best reply behavior
D) Price expectations
E) Loss decomposition
F) Subjective confidence in price expectation
G) Summary of chapter 1
Chapter 2: Does money illusion matter? 96
2.1. Specification of hypotheses to be tested 97
2.2. The effect of nominal representation given strategic complementarity 98
A) Nominal rigidity
B) Monetary non-neutrality
C) Best reply behavior
D) Price expectations
E) Confidence in price expectation
2.3. The effect of representation given strategic substitutes 114
A) Nominal rigidity
B) Monetary non-neutrality
2.4. Summary of chapter 2 117
Chapter 3: The effects of strategic complements and strategic substitutes 119
3.1. Specification of hypotheses to be tested 19
A) Specification of hypothesis H_{A2}
B) Specification of hypothesis H_{A3}
3.2. The effect of strategic substitutes vs. complements when the environment is represented in nominal terms 123
A) Nominal rigidity
B) Monetary non-neutrality
C) Best reply behavior
D) Price expectations
E) Confidence in price expectations
3.3. The effect of strategic properties when the environment is represented in real terms 135
A) Nominal rigidity
B) Monetary non-neutrality
C) Best reply behavior and expectations
Chapter 4: Summary of results 140
Part IV
Discussion of Results 145
Chapter 1: Empirical relevance of results 147
A) Biases in favor of monetary neutrality
B) Biases against monetary neutrality?
C) Extensions and suggestions for further research
Chapter 2: Implications for economic theory and policy 159
2.1. Money illusion and the rationality paradigm 159
2.2. Implications for macroeconomic theory 163
2.3. Implications for economic policy 165
Appendices 169
Appendix A1. Instructions 170
Appendix A2. Income tables 179
Appendix A3. Mathematical appendix 200
References 211
List of tables 223
List of figures 224
Author index 226
END
