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http://hdl.handle.net/10419/49396
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| Title: | | Money illusion and the long-run Phillips curve in staggered wage setting models  |
| Authors: | | Vaona, Andrea |
| Issue Date: | | 2011 |
| Series/Report no.: | | Kiel Working Papers 1714 |
| 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 households under-perceive real economic variables, negative money non-superneutralities will become more severe. On the contrary, if households over-perceive real variables, positive money nonsuperneutralities will arise. We also provide a welfare analysis of our results and we show that they are robust to the inclusion of varying capital into the model. Firms' (over-)under-perception of the real prices of production inputs strengthens) weakens negative money non-superneutralities. In an appendix, we investigate how money illusion affects the short-run effects of a monetary shock. |
| Subjects: | | Phillips curve inflation nominal inertia monetary policy dynamic general equilibrium money illusion Stevens' ratio estimation function |
| JEL: | | E3 E20 E40 E50 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des IfW Kieler Arbeitspapiere, IfW
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