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Money illusion and the long-run Phillips curve in staggered wage-setting models

Author

Listed:
  • Andrea Vaona

    (Department of Economics (University of Verona))

Abstract
We consider the effect of money illusion - defined referring to Stevens' ratio estimation function - on the long-run Phillips curve in an otherwise standard New Keynesian model of sticky wages. We show that if agents under-perceive real economic variables, negative money non-superneutralities will become more severe. On the contrary, if agents over-perceive real variables, positive money superneutralities will arise.

Suggested Citation

  • Andrea Vaona, 2010. "Money illusion and the long-run Phillips curve in staggered wage-setting models," Working Papers 14/2010, University of Verona, Department of Economics.
  • Handle: RePEc:ver:wpaper:14/2010
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    References listed on IDEAS

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    1. Liam Graham & Dennis J. Snower, 2008. "Hyperbolic Discounting and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(2-3), pages 427-448, March.
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    7. Eldar Shafir & Peter Diamond & Amos Tversky, 1997. "Money Illusion," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 341-374.
    8. Vaona, Andrea & Snower, Dennis, 2008. "Increasing returns to scale and the long-run Phillips curve," Economics Letters, Elsevier, vol. 100(1), pages 83-86, July.
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    18. Klaus Wertenbroch & Dilip Soman & Amitava Chattopadhyay, 2007. "On the Perceived Value of Money: The Reference Dependence of Currency Numerosity Effects," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 34(1), pages 1-10, March.
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    Cited by:

    1. Andrea Vaona, 2015. "Anomalous empirical evidence on money long-run super-neutrality and the vertical long-run Phillips curve," Working Papers 17/2015, University of Verona, Department of Economics.
    2. Ryu‐ichiro Murota, 2018. "Aggregate demand deficiency, labor unions, and long‐run stagnation," Metroeconomica, Wiley Blackwell, vol. 69(4), pages 868-888, November.

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    More about this item

    Keywords

    Phillips curve; inflation; nominal inertia; monetary policy; dynamic general equilibrium; money illusion; Stevens' ratio estimation function;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General

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