"Does Money Illusion
Matter?" American Economic Review, 19(5): 1239-62.
The money illusion
even bleeds into impressions of the "strength" of the economy, as if a high level of GDP growth or a bull market are indicators of the health of something called the economy.
* Kelly Shue, Yale University and NBER, and Richard Townsend, University of California, San Diego, "Money Illusion
in Asset Pricing"
Many people suffer from money illusion
, meaning that they think in terms of nominal rather than real monetary values.
is most likely to occur when inflation is unanticipated, so that people's expectations of inflation turn out to be some distance from the correct level.
"The concept of money illusion
is critical here," he responds.
This enabled Friedman to avoid, wittingly or unwittingly, another strand of inflationary gap discussion with 1942 roots--namely, consumer money illusion
, Smithies (1942).
This would lead to a transfer of wealth to debtors from creditors and would result in falling living standards via money illusion
, rising prices, currency depreciation and loss of confidence.
Currency substitution (eurization) and money illusion
as the limited factors of devaluation implementation
Under the broader rubric of animal spirits as they define it, Akerlof and Shiller cite five factors that cause behavior to deviate from rationality, devoting one chapter to each of them: confidence, fairness, corruption and antisocial behavior, money illusion
, and stories.
And Friedman was surely fight to deride the idea of a long-term unemployment-inflation tradeoff depending on money illusion
Such a behaviour has been described for years by economists as the 'money illusion