This is a version of Lucas's (1972) 'Expectations and the Neutrality of Money' with finite supports for the exogenous random variables and with aggregate real shocks. The finite supports simplify the proofs and permit solutions for examples to be computed. The presence of aggregate shocks permits the model to display output-aggregate demand and output-inflation correlations that more closely duplicate those found in some data sets, correlations that have been interpreted as evidence against the model.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics