Munich Personal RePEc Archive

Money illusion, Gorman and Lau

Colby, Scott and Tim, Graciano and Jeffrey, LaFrance and Rulon, Pope (2011): Money illusion, Gorman and Lau.


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Any demand equation satisfying Lau’s (1982) Fundamental Theorem of Exact Aggregation and is 0° homogeneous in prices and income will have a Gorman (1981) functional form for each income term. This property does not depend on symmetry or adding up. The implications of this result are illustrated by an extensive example.

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