The Indeterminacy of Absolute Prices in Classical Economic Theory

Patinkin, Don

doi:10.2307/1912130

Cited by 87 publications

(31 citation statements)

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“…This postulate stipulates that demand and supply functions are homogeneous of degree zero in all nominal prices, i. e., they depend only on relative and not on absolute prices. Patinkin (1949) used a slightly different definition that also takes into account the potential effect of people's real wealth on their supply and demand behavior. According to Patinkin money illusion is absent if individuals' net demand functions are homogeneous of degree zero in all money prices and real wealth.…”

Section: Money Illusion At the Individual Levelmentioning

confidence: 99%

Does Money Illusion Matter?

Fehr

Tyran

2001

American Economic Review

321

170

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Money illusion means that people behave differently when the same objective situation is represented in nominal or in real terms. To examine the behavioral impact of money illusion we studied the adjustment process of nominal prices after a fully anticipated negative nominal shock in an experimental setting with strategic complementarity. We show that seemingly innocuous differences in payoff presentation cause large behavioral differences. In particular, if the payoff information is presented to subjects in nominal terms, price stickiness and real effects are much more pronounced than when payoff information is presented in real terms. The driving force of differences in real outcomes is subjects' expectation of higher nominal inertia in the nominal payoff condition. Due to strategic complementarity, these expectations induce subjects to adjust rather slowly to the shock.

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Section: Money Illusion At the Individual Levelmentioning

confidence: 99%

Does Money Illusion Matter?

Fehr

Tyran

2001

American Economic Review

321

170

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“…They explicitly recognized that money played no role in price determination processes. This was proved following the lines set out by Patinkin (1949). They stressed the indetermination of monetary prices, due to the "invalid dichotomy":…”

Section: A Project Shelvedmentioning

confidence: 84%

The Origins, Development, and Fate of Clower's 'Stock-Flow' General-Equilibrium Program

Plassard

2015

SSRN Journal

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Abstract:Before becoming the hallmark of macroeconomics à la Wynne Godley, the 'stock-flow' analysis was already developed in microeconomics and general equilibrium theory. Basically, the goal was to study the formation of economic plans and the determination of market prices when individuals were supposed to consume, produce, and hold commodities. It is acknowledged that Robert W. Clower was a central figure in this theoretical context. Yet, for both his contemporaries and for historians, his contributions remained essentially technical.No attention was paid to the theoretical project underlying the statics and dynamics analyses of his 'stock-flow' price theory. My paper aims to fill this gap. In light of his doctoral dissertation, I show that the elaboration of 'stock-flow' market models was part of a project aiming at offering sound microfoundations to a Keynesian business cycle model. I analyze the origins of this microfoundation program, trace its development, and discuss its fate.JEL codes: B2, E12, E32, D4

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“…that demand and supply depend on relative rather than absolute prices and thus are insensitive to absolute price changes. Patinkin (1949Patinkin ( , 1965 extended this to include monetary assets as cash balances. Consequently, Patinkin postulates the absence of money illusion on the basis of the zerohomogeneity property of net-demand functions in all money prices and the money value of initial holdings of assets.…”

Section: Money Illusion: Neglected In Research and Policymentioning

confidence: 99%