A Linearized Version of Lucas's Neutrality Model

Bennett McCallum

No 1160, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The model developed in Robert Lucas's influential "Expectations and the Neutrality of Money" has not been widely used for extensions or modifications of the original analysis, in part because of its difficulty of manipulation.The present paper describes a linearized version that--unlike other models prominent in the rational expectations literature--retains the original's mainfeatures yet is comparatively easy to manipulate.Two examples of modifications facilitated by this linearization are included. These involve an autoregressive money growth specification and the assumption of lump-sum (rather than proportional)monetary transfers.

Date: 1983-06
Note: EFG
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Published as McCallum, Bennett T. "A Linearized Version of Lucas's Neutrality Model." Canadian Journal of Economics, Vol. 17, No. 1, (February 1984), pp. 138-145.

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