This paper summarizes the theoretical role of intertemporal substitution variables in the "new classical macroeconomics." An important implication is that positive monetary shocks tend to raise expected real returns that are calculated from the usual partial information set, but tend to lower realized real returns. After reviewing previous empirical findings in the area, the study reports new results on the behavior of returns on the New York Stock Exchange and on Treasury Bills. The analysis isolates realized real rate of return effects that are significantly positive for a temporary government purchases variable and significantly negative for monetary movements. However, the results do not support the theoretical distinction between money shocks and anticipated changes in money. Since the study focuses on realized real returns, which can be measured in a straightforward manner, there is no evidence on the hypothesis that expected real returns, which are calculated on the basis of incomplete in-formation, rise with monetary disturbances. Because this proposition is sensitive to the specification of information sets, It may be infeasible to test it directly.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
0490.
Length: Date of creation: Jun 1980 Date of revision: Handle: RePEc:nbr:nberwo:0490
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Robert J. Barro & Xavier Sala-i-Martin, 1991.
"World Real Interest Rates,"
NBER Working Papers
3317, National Bureau of Economic Research, Inc.
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Robert J. Barro & Xavier Sala-i-Martin, 1990.
"World Real Interest Rates,"
NBER Chapters,
in: NBER Macroeconomics Annual 1990, Volume 5, pages 15-74
National Bureau of Economic Research, Inc.
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