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Keynes's animal spirits vindicated: an analysis of recent empirical and neural data on money illusion

  • Sacha Bourgeois-Gironde

    ()

    (IJN - Institut Jean-Nicod - CNRS : UMR8129 - Ecole Normale Supérieure de Paris - ENS Paris - Ecole des Hautes Etudes en Sciences Sociales (EHESS), LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442)

  • Marianne Guille

    (LEM - Laboratoire d'Économie Moderne - Université Paris II - Panthéon-Assas : EA4442)

Experimental economics and neuroeconomics are likely to provide new insights on the individual and sub-individual (neurobiological processes) anchoring of money illusion. In particular, some recent brain studies show that we appear more "motivated" and "rewarded" by nominal rather than real monetary values. The sensitivity of the reward brain system to the nominal format of money, due to the salience of this format, may explain money illusion at a biological level. If money illusion is thus rooted in our nature it sounds vain to expect from public monetary policies an elimination of this behavioral anomaly. On the contrary, we contend that the theoretical admission of the money illusion phenomenon, by early 20th century economists such as Keynes or Fisher, is now vindicated by experimental and neurobiological data, in spite of its long occultation by monetarist economists.

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Paper provided by HAL in its series Post-Print with number ijn_00713479.

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Date of creation: 2011
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Publication status: Published, Journal of Post-Keynesian Economics, 2011, 34, 2, 331-352
Handle: RePEc:hal:journl:ijn_00713479
Note: View the original document on HAL open archive server: http://jeannicod.ccsd.cnrs.fr/ijn_00713479
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  1. Edmund Cannon & Giam Pietro Cipriani, 2003. "Euro-illusion: a natural experiment," Bristol Economics Discussion Papers 03/556, Department of Economics, University of Bristol, UK.
  2. Christofides, Louis N. & Peng, Chen, 2006. "Contract duration and indexation in a period of real and nominal uncertainty," Labour Economics, Elsevier, vol. 13(1), pages 61-86, February.
  3. Ernst Fehr & Jean-Robert Tyran, . "Does Money Illusion Matter?," IEW - Working Papers 012, Institute for Empirical Research in Economics - University of Zurich.
  4. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
  5. Besancenot, Damien & Rocheteau, Guillaume & Vranceanu, Radu, 2000. "Search, Price Illusion and Welfare," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 109-124, January.
  6. Paul Davidson, 2010. "Behavioral economists should make a turn and learn from Keynes and Post Keynesian economics," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 33(2), pages 251-254, January.
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