Research ArticleOpen AccessGoogle Scholar indexed
The Role of Money: Credible Asset or Numeraire?
Institute of Social Science, University of Tokyo, Tokyo, Japan
- 1 Institute of Social Science, University of Tokyo, Tokyo, Japan
Theoretical Economics Letters·Volume 02 (2012)·Pages 180–182·Published 23 May 2012·DOI10.4236/tel.2012.22031
Copy link · social · email
Abstract
It is well known that money is neutral if 1) people hold the extraneous belief that it is an only numeraire and does not possess intrinstic value, and 2) new money is injected into an economy as its own interest in the OLG model under perfect information (Lucas [1] Theorem (2)). We find that whenever 1) is not satisfied and money is rationally held to have substance value, money becomes non-neutral even if we use the same model as Lucas [1].
KeywordsNeutrality of MoneyCredibility of MoneyMultiplicity of Rational Expectation Equilibrium
- R. E. Lucas Jr., “Expecations and the Neutrality of Money,” Journal of Economic Theory, Vol. 4, No. 2, 1972, pp. 103-124. doi:10.1016/0022-0531(72)90142-1
- K. Otani, “Rational Expectations and Non-Nuetrality of Money,” Weltwirschaftliches, Vol. 121, 1985, pp. 207- 216.
- M. Otaki, “The Dynamically Extended Keynesian Cross and the Welfare-Improving Fiscal Policy,” Economics Letters, Vol. 96, No. 1, 2007, pp. 23-29. doi:10.1016/j.econlet.2006.12.005
- M. Otaki, “A Welfare Economic Foundation for the Full-Employment Policy,” Economics Letters, Vol. 102, No. 1, 2009, pp. 1-3. doi:10.1016/j.econlet.2008.08.003
- M. Otaki, “A Pure Theory of Aggregate Price Determination,” Theoretical Economics Letters, Vol. 1, No. 3, 2011, pp. 122-128. doi:10.4236/tel.2011.13026