Abstract

This paper reconsiders the Phelps-Lucas hypothesis, according to which temporary real effects of purely nominal disturbances result from imperfect information about the nature of these disturbances. This explanation for the real effects of monetary policy is often dismissed on the ground that the Lucas (1972) model predicts only highly transitory effects on real activity, and none at all insofar as changes in monetary policy can be observed by the public prior to any measurable effect on aggregate nominal expenditure. The present paper

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