The Role of Money: Credible Asset or Numeraire?

Abstract

It is well known that money is neutral if 1) people hold the extraneous belief that it is an only numeraire and does not possess intrinstic value, and 2) new money is injected into an economy as its own interest in the OLG model under perfect information (Lucas [1] Theorem (2)). We find that whenever 1) is not satisfied and money is rationally held to have substance value, money becomes non-neutral even if we use the same model as Lucas [1].

Share and Cite:

M. Otaki, "The Role of Money: Credible Asset or Numeraire?," Theoretical Economics Letters, Vol. 2 No. 2, 2012, pp. 180-182. doi: 10.4236/tel.2012.22031.

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1] R. E. Lucas Jr., “Expecations and the Neutrality of Money,” Journal of Economic Theory, Vol. 4, No. 2, 1972, pp. 103-124. doi:10.1016/0022-0531(72)90142-1
[2] K. Otani, “Rational Expectations and Non-Nuetrality of Money,” Weltwirschaftliches, Vol. 121, 1985, pp. 207- 216.
[3] M. Otaki, “The Dynamically Extended Keynesian Cross and the Welfare-Improving Fiscal Policy,” Economics Letters, Vol. 96, No. 1, 2007, pp. 23-29. doi:10.1016/j.econlet.2006.12.005
[4] M. Otaki, “A Welfare Economic Foundation for the Full-Employment Policy,” Economics Letters, Vol. 102, No. 1, 2009, pp. 1-3. doi:10.1016/j.econlet.2008.08.003
[5] M. Otaki, “A Pure Theory of Aggregate Price Determination,” Theoretical Economics Letters, Vol. 1, No. 3, 2011, pp. 122-128. doi:10.4236/tel.2011.13026

Copyright © 2024 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.