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## Endogenous Uncertainty and the Non-Neutrality of Money (2003)

Venue: | Economic Theory |

Citations: | 12 - 6 self |

### Citations

863 | Expectations and the Neutrality of Money
- Lucas
- 1972
(Show Context)
Citation Context ... proposition was merely regarded as a general principle following from the Quantity Theory of Money. No precise account of the role of expectations was given to support such a proposition. With Lucas =-=[25]-=- money neutrality began to be viewed as an “expectational” phenomenon. Under Rational Expectations money is neutral because it is common knowledge that all agents expect the equilibrium price function... |

761 |
Rational expectations and the theory of price movements
- Muth
- 1961
(Show Context)
Citation Context ...good is not storable, in order to consume in the second period of their life (when old) they have to hold money. All agents have identical preferences and rational 4 expectations in the sense of Muth =-=[32]-=-. Trading occurs on two competitive geographically isolated markets1 without any trading occurring between them and without information exchange between them as well. At each date t the young agents a... |

415 | AMonetary History of the United States, 1867–1960,
- Friedman, Schwartz
- 1963
(Show Context)
Citation Context ...with the pro-cyclical rational belief structure, that is, we observe a positive correlation between the growth rate of money and output (see the highly debated issue outlined by Friedman and Schwartz =-=[7]-=- and recently reestablished by Aksoy and Piskorski [1]). Analogous modeling and results have been studied by Kurz, Jin and Motolese [21]. The above conclusion leads to the natural question of whether ... |

356 |
Rational expectations, the optimal monetary instrument, and the optimal money supply rule.
- Sargent, Wallace
- 1975
(Show Context)
Citation Context ...ations money is neutral because it is common knowledge that all agents expect the equilibrium price function to exhibit neutrality. The neutrality theory, developed by Lucas [25], Sargent and Wallace =-=[36]-=- often referred to as LSW proposition, states that any anticipated monetary shock would have no effect on real economic variables neither in the short run nor in the long run. Based on their theory of... |

183 |
Federal Reserve Information and the Behavior of Interest Rates.
- Romer, Romer
- 2000
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Citation Context ...ity of market data on expectations is crucial to address this issue. Within the RBE theory a recent paper by Kurz [19] started tackling such a topic following earlier issues raised by Romer and Romer =-=[35]-=-. 4 Real GNP fluctuations and the Phillips Curve. Tables 1 and 2 show a very important feature of the RBE under study: some components of real GNP fluctuations in the economy are explained by an endog... |

181 | Imperfect Common Knowledge and the Effects of Monetary Policy.
- Woodford
- 2003
(Show Context)
Citation Context ... on the realization of such random variables as sunspots which have no inherent relevance to the fundamentals of the economy. Some more concerns have as well been raised in a recent paper by Woodford =-=[37]-=- who shows that money non-neutrality can emerge as a simple consequence of the failure of common knowledge of monetary shocks to hold at any level of the chain of reasoning. This shows even further ho... |

161 |
Do Sunspots Matter?
- Cass, Shell
- 1983
(Show Context)
Citation Context ... affected by the money stock. Concern about the validity of the LSW proposition has also been raised by the theoretical sunspots literature. Azariadis [2], Azariadis and Guesnerie [3], Cass and Shell =-=[5]-=- and others show that money can be nonneutral in a wide class of models in which equilibrium depends on the realization of such random variables as sunspots which have no inherent relevance to the fun... |

86 | Monetary Neutrality - Lucas - 1996 |

57 |
Sunspots and Cycles,
- Azariadis, Guesnerie
- 1984
(Show Context)
Citation Context ...tionary and strongly affected by the money stock. Concern about the validity of the LSW proposition has also been raised by the theoretical sunspots literature. Azariadis [2], Azariadis and Guesnerie =-=[3]-=-, Cass and Shell [5] and others show that money can be nonneutral in a wide class of models in which equilibrium depends on the realization of such random variables as sunspots which have no inherent ... |

54 |
Does Anticipated Monetary Policy Matter? An Econometric Investigation,"
- Mishkin
- 1982
(Show Context)
Citation Context ...ticipated policy shocks can influence real variables in the short run while in the long run the classical neutrality proposition holds. Empirical evidence has not supported such a conclusion: Mishkin =-=[29]-=-, using quarterly data for the United States for the period 1954-1976, conclude that both anticipated and unanticipated monetary policy have a long lasting effect on output. Similar conclusions on Uni... |

48 | Endogenous Uncertainty and Market Volatility." - Kurz, Motolese - 2001 |

38 |
On the Structure and Diversity of Rational Beliefs,"
- Kurz
- 1990
(Show Context)
Citation Context ...money supply at date 0, M0, define pt = Pt/Mt−1 and pt+1 = Pt+1/Mt which by equation (7) can be written as pt+1 = Pt+1/Mt−1xt.4 This allows us to satisfy the stability conditions in the sense of Kurz =-=[12]-=-. In equilibrium inflation rates for all transitions from t to t+ 1 are defined by 1 + it+1 = Pt+1 Pt t = 1, 2, ... and using the definition, given above, of pt and equation (7) we redefine them by 1 ... |

27 |
Rational Belief Structures and Rational Belief Equilibria.
- Nielsen
- 1996
(Show Context)
Citation Context ... K − K∑ k=1 ξk ( pt, xt, θt, y k t )) . (14) We can solve (14) and write the equilibrium map in the form pt = Φ ∗ (xt, θt, yt) t = 1, 2, ... (15) Solution of the form (15) are also derived by Nielsen =-=[33]-=-, Kurz and Schneider [23], Kurz and Wu [24], Kurz and Beltratti [20], Kurz [16], [18] and by Kurz and Motolese [22]. The state space for equilibrium analysis is (X ×Θ× Y ). Note that the number of dis... |

24 |
Some International Evidence on Output Inflation Tradeoffs
- Lucas
- 1979
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Citation Context ...market price. The young agent’s utility, measured by a Von Neumann-Morgestern utility 1In the following literature this type of model has been explicitly referred to as the twoisland model (see Lucas =-=[26]-=-). In Azariadis [2] the two markets are named, in a very colorful way, Pacifica and Atlantica 5 function which has the form U (ct, nt) + V (ct+1) (2) depends on consumption ct, supply of labor nt at d... |

23 |
The Equity Premium is No Puzzle."
- Kurz, Beltratti
- 1997
(Show Context)
Citation Context ...rite the equilibrium map in the form pt = Φ ∗ (xt, θt, yt) t = 1, 2, ... (15) Solution of the form (15) are also derived by Nielsen [33], Kurz and Schneider [23], Kurz and Wu [24], Kurz and Beltratti =-=[20]-=-, Kurz [16], [18] and by Kurz and Motolese [22]. The state space for equilibrium analysis is (X ×Θ× Y ). Note that the number of distinct equilibrium prices cannot exceed M = |Θ| |X|∏Kk=1 ∣∣Y k∣∣. 11 ... |

22 | The Kesten-Stigum Model and the Treatment of Uncertainty in Equilibrium Theory," - Kurz - 1974 |

20 | Endogenous uncertainty in a general equilibrium model with price contingent contracts.
- Kurz, Wu
- 1996
(Show Context)
Citation Context ...) We can solve (14) and write the equilibrium map in the form pt = Φ ∗ (xt, θt, yt) t = 1, 2, ... (15) Solution of the form (15) are also derived by Nielsen [33], Kurz and Schneider [23], Kurz and Wu =-=[24]-=-, Kurz and Beltratti [20], Kurz [16], [18] and by Kurz and Motolese [22]. The state space for equilibrium analysis is (X ×Θ× Y ). Note that the number of distinct equilibrium prices cannot exceed M = ... |

19 |
Money Non-Neutrality in a Rational Belief Equilibrium with Financial Assets."
- Motolese
- 2001
(Show Context)
Citation Context ...pret current information differently. Hence, even fully observed monetary shocks could be interpreted differently by agents and money non-neutrality is implied (for earlier results see Motolese [30], =-=[31]-=- and Kurz, Jin and Motolese [21]). Furthermore, the non-neutrality of money under RBE results in the emergence of a short run Phillips curve. The non-zero slope of this curve in the monetary equilibri... |

18 |
On rational belief equilibria,
- Kurz
- 1994
(Show Context)
Citation Context ...l information for the conduct of monetary policy. The results obtained in the present study and Nielsen [34] represent a first step in addressing the implications of the theory proposed by Kurz [12], =-=[13]-=- to monetary policy. Further implications have already been addressed by Kurz, Jin and Motolese [21] who show under an infinite horizon RBE money non-neutrality, the existence of a short-run Phillips ... |

11 |
On the Volatility of Foreign Exchange Rates."
- Kurz
- 1997
(Show Context)
Citation Context ...uilibrium map in the form pt = Φ ∗ (xt, θt, yt) t = 1, 2, ... (15) Solution of the form (15) are also derived by Nielsen [33], Kurz and Schneider [23], Kurz and Wu [24], Kurz and Beltratti [20], Kurz =-=[16]-=-, [18] and by Kurz and Motolese [22]. The state space for equilibrium analysis is (X ×Θ× Y ). Note that the number of distinct equilibrium prices cannot exceed M = |Θ| |X|∏Kk=1 ∣∣Y k∣∣. 11 We then con... |

9 | TENSOLVE: A software Package for Solving Systems of Nonlinear Equations and Nonlinear Least Squares Problems Using Tensor Methods. Argonne National Laboratories
- Bouaricha, Schnabel
- 1994
(Show Context)
Citation Context ...ng standard Newton method as supplied by the software package TENSOLVE, a suite of FORTRAN 77 subroutines. For a complete overview of the software package TENSOLVE see Bouaricha A. and Schnabel R. B. =-=[4]-=-. All computations have been implemented in FORTRAN 77 on DECStations Sun Ultra Enterprise 5000/200. 16 Then the following probabilities (where F s,j1 is the (s, j) element of F1) Qs1(s,j) = { F s,j1 ... |

9 | Asset prices with rational beliefs, - Kurz - 1997 |

8 |
Endogenous Fluctuations and the Role of Monetary Policy
- Kurz, Jin, et al.
- 2002
(Show Context)
Citation Context ...ntly. Hence, even fully observed monetary shocks could be interpreted differently by agents and money non-neutrality is implied (for earlier results see Motolese [30], [31] and Kurz, Jin and Motolese =-=[21]-=-). Furthermore, the non-neutrality of money under RBE results in the emergence of a short run Phillips curve. The non-zero slope of this curve in the monetary equilibria with diverse beliefs, in spite... |

7 |
Floating exchange rates versus a monetary union under Rational Beliefs: the role of endogenous uncertainty
- Nielsen
- 1997
(Show Context)
Citation Context ...etary policy. For this reason we think that the distribution of market beliefs constitutes useful information for the conduct of monetary policy. The results obtained in the present study and Nielsen =-=[34]-=- represent a first step in addressing the implications of the theory proposed by Kurz [12], [13] to monetary policy. Further implications have already been addressed by Kurz, Jin and Motolese [21] who... |

6 |
Endogenous Economic Fluctuations: Studies in the Theory of Rational Belief
- Kurz
- 1997
(Show Context)
Citation Context ...in our model; indeed we assume that, at date t, xt and θt are observed by all agents. This 3For a better understanding of the notation and terminology used here see chapter 3 in Motolese [30] or Kurz =-=[14]-=-. 8 is equivalent to say that once the monetary policy at date t is announced it is known to all agents. Under these assumptions in Lucas’ model with proportional transfers money is neutral. This is n... |

5 | Endogenous Uncertainty: A Unified View of Market Volatility. Working Paper 97-027 - Kurz - 1997 |

5 | Social States of Belief and the Determinant of the Equity Risk Premium in a Rational Belief Equilibrium. In
- Kurz
- 1998
(Show Context)
Citation Context ... present in the economy. Generally within each agent-type the N agents might have the same utility and hold different conditional beliefs. This is the case of social states of beliefs studied in Kurz =-=[18]-=-. In the present study we concentrate on the extreme case in which the beliefs of the agents are perfectly correlated within each agent-type hence agents of the same type hold 2Following Lucas’ erratu... |

5 |
Heterogenous forecasting and federal reserve information, Manuscript,
- Kurz
- 1997
(Show Context)
Citation Context ... observed in the market. We can not give an answer yet. Further research and availability of market data on expectations is crucial to address this issue. Within the RBE theory a recent paper by Kurz =-=[19]-=- started tackling such a topic following earlier issues raised by Romer and Romer [35]. 4 Real GNP fluctuations and the Phillips Curve. Tables 1 and 2 show a very important feature of the RBE under st... |

4 |
A Reexamination of Natural Rate Theory
- Azariadis
- 1981
(Show Context)
Citation Context ...bor-supply process is non-stationary and strongly affected by the money stock. Concern about the validity of the LSW proposition has also been raised by the theoretical sunspots literature. Azariadis =-=[2]-=-, Azariadis and Guesnerie [3], Cass and Shell [5] and others show that money can be nonneutral in a wide class of models in which equilibrium depends on the realization of such random variables as sun... |

3 |
Review of A program for monetary stability by Milton Friedman.
- Gurley
- 1961
(Show Context)
Citation Context ...ave real effects even when they are observed but are not fully anticipated. Furthermore, the non-neutrality of money results in a short run Phillips curve. When money “flutters, real output sputters” =-=[8]-=-. We show that Endogenous Uncertainty and the distribution of market beliefs are the major explanatory variables of such fluctuations. Under Rational Expectations monetary policy is ineffective becaus... |

3 |
An Econometric Investigation of the Monetary Neutrality and Rationality Propositions from an International Perspective."
- Hoffman, Schlagenhauf
- 1982
(Show Context)
Citation Context ...hat both anticipated and unanticipated monetary policy have a long lasting effect on output. Similar conclusions on United States and five additional countries are reached by Hoffman and Schlagenhauf =-=[9]-=-. Aware of the empirical evidence of money non-neutrality, early studies of monetary policy under Rational Expectations Equilibrium (in short REE) focused on informational imperfections. Lucas’ [25] a... |

2 |
indétermination et nonneutralité de la monnaie. Annales d’Economie et de Statistique 19
- Chiappori, Guesnerie, et al.
- 1990
(Show Context)
Citation Context ...monetary policy is Pareto-optimal. The Rational Expectations approach dominated almost all economic thought in the 1970’s and early 1980’s. However, some concerns were raised: Chiappori and Guesnerie =-=[6]-=- proves the existence of a new class of non-linear solutions to the Lucas’ [25] model which exhibit the non-neutrality property. In fact, under those solutions the labor-supply process is non-stationa... |

2 |
Dynamic Non-neutrality of Money under Rational Beliefs: the Role of Endogenous Uncertainty. A Ph.D. dissertation submitted to the
- Motolese
- 1998
(Show Context)
Citation Context ... interpret current information differently. Hence, even fully observed monetary shocks could be interpreted differently by agents and money non-neutrality is implied (for earlier results see Motolese =-=[30]-=-, [31] and Kurz, Jin and Motolese [21]). Furthermore, the non-neutrality of money under RBE results in the emergence of a short run Phillips curve. The non-zero slope of this curve in the monetary equ... |

1 |
Domestic Money and US Output and Inflation. CFS Working Paper 2001/08, Center for Financial Studies an der Johann Wolfgang Goethe-Universität
- Aksoy, Piskorski
- 2001
(Show Context)
Citation Context ...is, we observe a positive correlation between the growth rate of money and output (see the highly debated issue outlined by Friedman and Schwartz [7] and recently reestablished by Aksoy and Piskorski =-=[1]-=-). Analogous modeling and results have been studied by Kurz, Jin and Motolese [21]. The above conclusion leads to the natural question of whether the structure of beliefs under Case 1 is the actual pa... |

1 |
A Monetary Theory of Production. First published in 1933. Reprinted in The Collected
- Keynes
- 1973
(Show Context)
Citation Context ...ong period or in the short, without a knowledge of the behavior of money between the first state and the last. And it is this which we ought to mean when we speak of a monetary economy”. (J.M. Keynes =-=[10]-=- pp. 408, 409). The New Classical Economics discarded this perspective and insisted on the neutrality property of money. One can find early assertions of the neutrality of money in writings regarding ... |

1 |
Expectations and the Neutrality of Money: Corrigendum
- Lucas
- 1983
(Show Context)
Citation Context ...In the present study we concentrate on the extreme case in which the beliefs of the agents are perfectly correlated within each agent-type hence agents of the same type hold 2Following Lucas’ erratum =-=[27]-=- and relaxing the a priori neutrality-like hypothesis, Chiappori and Guesnerie [6] found a broader class of non-neutral solutions to the price function p = Ψ (m,x, θ) = ψ (m, z) with z = x/θ. 7 the sa... |