Money Illusion and the Optimal Long-Run Rate of Inflation
(2011) NEKM01 20111Department of Economics
- Abstract (Swedish)
- The conventional NAIRU model stipulates that any existing money illusion would vanish by the passage of time. In contrast, the model developed by Akerlof, Dickens and Perry (2000) (ADP) argues that inflation, instead of time, dissipate money illusion. Accordingly, there exists a possibility of an inflation unemployment tradeoff in the long run. This essay reviews the evidence of money illusion and the main criticism against the ADP-model. Furthermore, a reevaluation of the Swedish backward-bending Phillips curve derived by Lundborg and Sacklén (2006) is performed, using an updated dataset covering a longer time period with an inflation targeting regime. The results are inconclusive to whether the Phillips curve derived by Lundborg and... (More)
- The conventional NAIRU model stipulates that any existing money illusion would vanish by the passage of time. In contrast, the model developed by Akerlof, Dickens and Perry (2000) (ADP) argues that inflation, instead of time, dissipate money illusion. Accordingly, there exists a possibility of an inflation unemployment tradeoff in the long run. This essay reviews the evidence of money illusion and the main criticism against the ADP-model. Furthermore, a reevaluation of the Swedish backward-bending Phillips curve derived by Lundborg and Sacklén (2006) is performed, using an updated dataset covering a longer time period with an inflation targeting regime. The results are inconclusive to whether the Phillips curve derived by Lundborg and Sacklén hold in the new time period, which warrants further analysis. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2154721
- author
- Stiernstedt, Hannes LU
- supervisor
-
- Klas Fregert LU
- organization
- course
- NEKM01 20111
- year
- 2011
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Money Illusion, Phillips curve, efficiency wages, near-rationality
- language
- English
- id
- 2154721
- date added to LUP
- 2011-09-27 08:24:50
- date last changed
- 2011-09-27 08:24:50
@misc{2154721, abstract = {{The conventional NAIRU model stipulates that any existing money illusion would vanish by the passage of time. In contrast, the model developed by Akerlof, Dickens and Perry (2000) (ADP) argues that inflation, instead of time, dissipate money illusion. Accordingly, there exists a possibility of an inflation unemployment tradeoff in the long run. This essay reviews the evidence of money illusion and the main criticism against the ADP-model. Furthermore, a reevaluation of the Swedish backward-bending Phillips curve derived by Lundborg and Sacklén (2006) is performed, using an updated dataset covering a longer time period with an inflation targeting regime. The results are inconclusive to whether the Phillips curve derived by Lundborg and Sacklén hold in the new time period, which warrants further analysis.}}, author = {{Stiernstedt, Hannes}}, language = {{eng}}, note = {{Student Paper}}, title = {{Money Illusion and the Optimal Long-Run Rate of Inflation}}, year = {{2011}}, }