In a number of influential recent papers, Taylor (1979a, b; 1980a, b) has analyzed the behaviour of an economy characterized by staggered over-lapping wage contracts and rational expectations. His model has the "Keynesian" feature that the second moment of the distribution function of real output...

The standard approach to nominal illusion in Economics sees it as a transitory phenomenon, as economic agents eventually see through the nominal veil, making the right choices. Recent empirical studies suggest that money illusion may persist, distorting real prices in a variety of economic...

This study investigates the role of money illusion in a broad set of anomaly-based strategies. To the extent that anomalies reflect mispricing, I examine whether money illusion predicts anomaly returns. I find that, following periods of high inflation, anomalies are stronger and returns in short...

To examine the degree to which price fluctuations affect how individuals approach an intertemporal decision-making problem, we conduct a laboratory experiment in which subjects spend their savings on consumption over 20 periods. In the control treatment, the commodity price is constant across...

The tendency of people to think of money in nominal, rather than real, terms is now well documented by recent empirical data. In particular, experimental and neurobiological data provide new insights on the individual and subindividual (neurobiological processes) anchoring of money illusion. The...

We show that when investors suffer from endogenous asymmetric money illusion, the usual proportionality between money supply and nominal prices commonly present in frictionless economies is eliminated. This drives changes in the money supply to cause real price fluctuations. Nevertheless, the...

Money illusion refers to the tendency to evaluate economic transactions in nominal rather than real terms. One manifestation of this phenomenon is the tendency to neglect future inflation in intertemporal investment decisions. Empirical evidence for this “inflation ignorance” is hard to...