Testing Long-run Neutrality: Empirical Evidence for G7-Countries with Special Emphasis on Germany
AbstractModern neo-Keynesian, new classical, and real business cycle models typically differ in the degree to which they incorporate long-run or short-run neutrality propositions. Despite their importance, little firm international evidence on the validity of these neutrality hypotheses is available to date. The paper applies a bivariate VAR approach to test the long-run restrictions implied by a number of neoclassical neutrality propositions. The evidence from the G7-countries appears to be consistent with the long-run neutrality of money and the vertical Phillips-curve, but the data largely refute the long-run superneutrality of money and the 'Fisher-effect' of inflation on interest rates.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 281.
Date of creation: 1994
Date of revision: Jun 1994
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unit roots; vector autoregressions; long-run; neutrality; superneutrality; 'Phillips-curve'; 'Fisher-effect'; 'Lucas-critique';
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