A Linearized Version of Lucas's Neutrality Model

18 Pages Posted: 1 Feb 2001 Last revised: 4 Sep 2010

See all articles by Bennett T. McCallum

Bennett T. McCallum

Carnegie Mellon University - David A. Tepper School of Business; National Bureau of Economic Research (NBER)

Date Written: June 1983

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.

Suggested Citation

McCallum, Bennett T., A Linearized Version of Lucas's Neutrality Model (June 1983). NBER Working Paper No. w1160, Available at SSRN: https://ssrn.com/abstract=227126

Bennett T. McCallum (Contact Author)

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