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

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  • 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.

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Bibliographic Info

Paper provided by University of Verona, Department of Economics in its series Working Papers with number 14/2010.

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Length: 18
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:ver:wpaper:14/2010

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Keywords: Phillips curve; inflation; nominal inertia; monetary policy; dynamic general equilibrium; money illusion; Stevens' ratio estimation function;

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