Money non-neutrality in a Rational Belief Equilibrium with financial assets |
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Authors: | Maurizio Motolese |
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Institution: | (1) Istituto di Politica Economica, Università Cattolica di Milano, via Necchi 5, 20123 Milano, ITALY (e-mail: maurizio.motolese@mi.unicatt.it) , IT |
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Abstract: | Summary. In Rational Beliefs Equilibria money is generically non-neutral. Given the expectational perspective proposed by the Theory
of Rational Belief Equilibrium, we show that one of the most important factors in the emergence of money non-neutrality is
played by Endogenous Uncertainty. This, in contrast to the Rational Expectations results of money neutrality and policy ineffectiveness, leads to a scenario
in which monetary policy has an impact on the real economy and price volatility. The heterogeneity of beliefs together with
the distribution and intensity of agents' states of optimism/pessimism can amplify the real effect of monetary policy and/or
generate endogenous fluctuations in the economy which are not explained by any exogenous shock. We claim that money non-neutrality
is mostly an expectations driven phenomenon. Indeed, additional assumptions of asymmetry of information and/or unanticipated
monetary policy are not needed to explain the real effect of monetary policy as it is customary in the New Classical Theory.
Received: May 30, 2000; revised version: December 28, 2000 |
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Keywords: | and Phrases: Money non-neutrality Monetary policy Rational expectations Rational beliefs Rational Belief Equilibrium Endogenous uncertainty States of belief |
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