Endogenous Uncertainty and the Non-neutrality of Money

Maurizio Motolese*

*Autore corrispondente per questo lavoro

Risultato della ricerca: Contributo in rivistaArticolopeer review

10 Citazioni (Scopus)

Abstract

We study some implications of the Theory of Rational Beliefs to monetary\r\npolicy. We show that monetary policy in a Rational Beliefs environment can\r\nhave an important effect on the characteristics of economic fluctuations. In Rational\r\nBeliefs Equilibria money is generically non-neutral unlike Rational Expectations\r\nEquilibria in which money is neutral and monetary policy is ineffective. Under\r\nRational Beliefs Equilibria nominal prices and real output change not only in response\r\nto changes in the exogenous growth rate of money but also in response to\r\nchanges in the state of beliefs. In Rational Beliefs Equilibria monetary shocks have\r\nreal effects even when they are observed but are not fully anticipated. Furthermore,\r\nthe non-neutrality of money results in a short run Phillips curve. When money\r\n¿flutters, real output sputters¿. We show that Endogenous Uncertainty and the\r\ndistribution of market beliefs are the major explanatory variables of such fluctuations.\r\nUnder Rational Expectations monetary policy is ineffective because agents\r\nneutralize it by predicting correctly the effect of the policy. Under Rational Beliefs\r\nit is shown instead that inflation and recessions can be substantially aggravated by\r\nthe distribution of market beliefs.
Lingua originaleInglese
pagine (da-a)317-345
Numero di pagine29
RivistaEconomic Theory
Numero di pubblicazione21
DOI
Stato di pubblicazionePubblicato - 2003

All Science Journal Classification (ASJC) codes

  • Economia ed Econometria

Keywords

  • Endogenous Uncertainty
  • Monetary Policy
  • Money non neutrality
  • Phillips Curve
  • Rational Belief Equilibrium
  • Rational Beliefs
  • Rational Expectations

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