W. E. Diewert, “Cost of Living Indexes and Exact Index Numbers,” Discussion Paper 09-06, Department of Eco- nomics, University of British Columbia, Vancouver, 2009.

has been cited by the following article:

• TITLE: A Pure Theory of Aggregate Price Determination

  AUTHORS: Masayuki Otaki

  KEYWORDS: Marginal Cost, True Cost of Living, Neutrality of Money, Credibility of Money, Rational Extraneous Belief

  JOURNAL NAME: Theoretical Economics Letters, Vol.1 No.3, November 7, 2011

  ABSTRACT: 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.