Not logged in.

Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Does Money Illusion Matter?
Organization Unit
  • Ernst Fehr
  • Jean-Robert Tyran
  • English
Institution University of Zurich
Series Name Working paper series / Institute for Empirical Research in Economics
Number No. 12
ISSN 1424-0459
Date 1999
Abstract Text "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 experimental setting with strategic complementarity. We show that seemingly innocuous differences in payoff presentation cause large behavioral differences. In particular, if the payoff information is presented to subjects in nominal terms, price stickiness and real effects are much more pronounced than when payoff information is presented in real terms. The driving force of differences in real outcomes is subjects’ expectation of higher nominal inertia in the nominal payoff condition. Due to strategic complementarity, these expectations induce subjects to adjust rather slowly to the shock."
Official URL
PDF File Download from ZORA
Export BibTeX