Modern 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. This 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 super-neutrality of money and the `Fisher effect' of inflation on interest rates.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1042.
Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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