A strategic analysis of “Expectations and the neutrality of money”

Gent Bajraj and Neil Wallace

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: "Expectations..." is the first counter-example to the view that a positive correlation between real output and the growth rate of the stock of money is exploitable. The equilibrium concept is rational expectations equilibrium. Here, two alternative strategic formulations -two versions of the marketgame model- are applied. In one, the young make non-contingent offers of real saving; in the other, they make contingent offers, where the contingency is the realization of the two shocks in the model. Under the informational assumption that the young know nothing about current realizations, neither strategic formulation converges under replication to an equilibrium that exhibits the above positive correlation.

Date: 2021-02
New Economics Papers: this item is included in nep-mac
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