Money illusion means that people behave differently when the same objective situation is represented in nominal or in real terms. To examine the behavioral impact of money illusion we studied the adjustment process of nominal prices after a fully anticipated negative nominal shock in an...

A basic principle of economics is that people always prefer a larger set of opportunities. Money illusion can be considered as the phenomenon that people may not perceive correctly their budget constraints, and may act in ways that run counter to this preference. In this view money illusion is a...