Advanced Search
MyIDEAS: Login to save this article or follow this journal

Rational Expectations and the Role of Monetary Policy: Some Tests Based on the Fisher Equation

Contents:

Author Info

  • Ali F. Darrat
Registered author(s):

    Abstract

    This paper tests, for the United Kingdom, the Lucas/Sargent and Wallace proposition that inflation influences real output if it is unexpected. Rational estimates of expected and unexpected inflation are derived using the Fisher/Fama hypothesis regarding the relationship between nominal (market) interest rates and expected inflation, but where real interest rates are allowed to vary. The empirical results, based on a modified real output model, do not contradict the Lucas/Sargent and Wallace proposition. As such, these results cast doubts on the usefulness of systematic inflationary (monetary) policy for stabilizing the real side of the British economy even in the short run.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume14/V14N3P211_219.pdf
    Download Restriction: no

    Bibliographic Info

    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 14 (1988)
    Issue (Month): 3 (Jul-Sep)
    Pages: 211-219

    as in new window
    Handle: RePEc:eej:eeconj:v:14:y:1988:i:3:p:211-219

    Contact details of provider:
    Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
    Phone: (201) 684-7346
    Email:
    Web page: http://www.ramapo.edu/eea/journal.html
    More information through EDIRC

    Related research

    Keywords:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Laumas, G S & McMillin, W D, 1984. "Anticipated Fiscal Policy and Real Output," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 468-71, August.
    2. Sargent, Thomas J & Wallace, Neil, 1975. ""Rational" Expectations, the Optimal Monetary Instrument, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 83(2), pages 241-54, April.
    3. Robert J. Barro & Mark Rush, 1979. "Unanticipated Money and Economic Activity," NBER Working Papers 0339, National Bureau of Economic Research, Inc.
    4. Arak, Marcelle, 1977. "Some International Evidence on Output-Inflation Tradeoffs: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 67(4), pages 728-30, September.
    5. Kugler, Peter, 1982. "The Dynamic Relationship between Interest Rates and Inflation: A Empirical Investigation," Empirical Economics, Springer, Springer, vol. 7(3-4), pages 125-37.
    6. Ray C. Fair, 1978. "An Analysis of the Accuracy of Four Macroeconometric Models," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 492, Cowles Foundation for Research in Economics, Yale University.
    7. Farley, John U. & Hinich, Melvin & McGuire, Timothy W., 1975. "Some comparisons of tests for a shift in the slopes of a multivariate linear time series model," Journal of Econometrics, Elsevier, Elsevier, vol. 3(3), pages 297-318, August.
    8. Small, David H, 1979. "Unanticipated Money Growth and Unemployment in the United States: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 69(5), pages 996-1003, December.
    9. Canzoneri, Matthew B., 1980. "Labor contracts and monetary policy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 6(2), pages 241-255, April.
    10. Barro, Robert J, 1977. "Unanticipated Money Growth and Unemployment in the United States," American Economic Review, American Economic Association, American Economic Association, vol. 67(2), pages 101-15, March.
    11. McGee, Robert T & Stasiak, Richard T, 1985. "Does Anticipated Monetary Policy Matter? Another Look," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 17(1), pages 16-27, February.
    12. Koskela, Erkki & Viren, Matti, 1980. "New international evidence on output-inflation tradeoffs : A note," Economics Letters, Elsevier, Elsevier, vol. 6(3), pages 233-239.
    13. Sargent, Thomas J, 1976. "A Classical Macroeconometric Model for the United States," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 84(2), pages 207-37, April.
    14. Evans, Paul, 1985. "Do Large Deficits Produce High Interest Rates?," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 68-87, March.
    15. Amihud, Yakov, 1982. "Unanticipated inflation and economic activity," Economics Letters, Elsevier, Elsevier, vol. 9(4), pages 327-335.
    16. Alan S. Blinder, 1980. "Inventories and the Structure of Macro Models," NBER Working Papers 0515, National Bureau of Economic Research, Inc.
    17. Katz, E, 1980. "Interest Rates as Predictors of Inflation in Small Economies: Some Empirical Results," Empirical Economics, Springer, Springer, vol. 5(3/4), pages 255-61.
    18. Brian Motley, 1983. "Real interest rates, money and government deficits," Economic Review, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Sum, pages 31-45.
    19. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(1), pages 191-205, February.
    20. Ali F. Darrat, 1985. "Unanticipated Inflation and Real Output: The Canadian Evidence," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 18(1), pages 146-55, February.
    21. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, American Economic Association, vol. 63(3), pages 326-34, June.
    22. Fama, Eugene F, 1975. "Short-Term Interest Rates as Predictors of Inflation," American Economic Review, American Economic Association, American Economic Association, vol. 65(3), pages 269-82, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:eej:eeconj:v:14:y:1988:i:3:p:211-219. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Victor Matheson, College of the Holy Cross).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.