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A Market-Based Test of the Effect of Monetary Policy

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  • Levi, Maurice
  • Shapiro, Alan C

Abstract

This paper tests the rational expectations-natural rate hypothesis withou t basing expectations on time series estimates. Instead, market-based data are used. Unexpected money supply changes are determined via th e Fisher Effect and the Quantity Equation. This introduces errors of a very different kind than the traditional approach, and yet the resu lts are remarkably similar to those generated using time series estim ates. Unanticipated money shocks are shown to exert a significant but only short-run effect on a real output, suggesting only a short-run Phillips curve trade-off. Anticipated money growth appears to have no affect on real output. Copyright 1987 by Oxford University Press.

Suggested Citation

  • Levi, Maurice & Shapiro, Alan C, 1987. "A Market-Based Test of the Effect of Monetary Policy," Economic Inquiry, Western Economic Association International, vol. 25(2), pages 341-349, April.
    • Handle: RePEc:oup:ecinqu:v:25:y:1987:i:2:p:341-49
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    Cited by:

    1. Shelley, Gary L. & Wallace, Frederick H., 1995. "A reexamination of Mishkin's neutrality test," Journal of Economics and Business, Elsevier, vol. 47(3), pages 255-265, August.
    2. Devadoss, Stephen, 1994. "A Study Of Macro Rational Expectations Hypothesis Tests On Commodity Markets," A.E. Research Series 305120, University of Idaho, Department of Agricultural Economics and Rural Sociology.

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