%0 Journal Article
%T A Pure Theory of Aggregate Price Determination
%A Masayuki Otaki
%J Theoretical Economics Letters
%P 122-128
%@ 2162-2086
%D 2011
%I Scientific Research Publishing
%R 10.4236/tel.2011.13026
%X This article considers aggregate price determination related to the neutrality of money. When the true cost of living can be defined as a function of prices in an overlapping generations (OLG) model, the marginal cost of a firm depends solely on the current and future prices. Thus, the sequence of equilibrium price becomes independent of the quantity of money. Hence, money becomes non-neutral. However, when people hold the extraneous belief that prices increases proportionately with money, this belief becomes self-fulfilling as long as the increment of money and true cost of living are low enough to guarantee full employment.
%K Marginal Cost
%K True Cost of Living
%K Neutrality of Money
%K Credibility of Money
%K Rational
Extraneous Belief
%U http://www.scirp.org/journal/PaperInformation.aspx?PaperID=8390