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Estimating the Long-Run Relationship Between Interest Rates and Inflation: A Response to McCallum

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  • Lawrence H. Summers

Abstract

This note demonstrates that Bennett McCallum's recent critique of low frequency estimates of macro-economic relationships is of little empirical significance. It also demonstrates that readily available and frequently used techniques can be used to diagnose the problem McCallum raises. Finally, it shows that the standard critique of expectational distributed lags is not warranted once the role of learning by economic agents is recognized.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1448.

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Date of creation: Apr 1990
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Publication status: published as Summers, Lawrence H. "Estimating the Long-Run Relationship between Interest Rates and Inflation." From Journal of Monetary Economics, Vol. 18, No. 1, pp. 77-86, (July 1986).
Handle: RePEc:nbr:nberwo:1448

Note: EFG ME
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  1. Engle, Robert F, 1974. "Band Spectrum Regression," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(1), pages 1-11, February.
  2. Martin Feldstein & Lawrence Summers, 1978. "Inflation, Tax Rules, and the Long Term-Interest Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(1), pages 61-110.
  3. McCallum, Bennett T, 1976. "Rational Expectations and the Natural Rate Hypothesis: Some Consistent Estimates," Econometrica, Econometric Society, Econometric Society, vol. 44(1), pages 43-52, January.
  4. Sargent, Thomas J, 1971. "A Note on the 'Accelerationist' Controversy," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 3(3), pages 721-25, August.
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Cited by:
  1. Markus J. Granziol & Anna Holzgang, 1988. "The Contribution of Inflation to the Level and the Variability of Nominal Interest Rates : Some Multi-Country Evidence," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), Swiss Society of Economics and Statistics (SSES), vol. 124(IV), pages 559-573, December.
  2. Erol, Umit & Balkan, Erol M., 1996. "How financial markets process money information: A re-examination of evidence using band spectrum regression," Journal of Macroeconomics, Elsevier, Elsevier, vol. 18(4), pages 639-656.
  3. Moazzami, Bakhtiar & Gupta, Kanhaya L., 1995. "The quantity theory of money and its long-run implications," Journal of Macroeconomics, Elsevier, Elsevier, vol. 17(4), pages 667-682.
  4. N. Gregory Mankiw & Ricardo Reis, 2001. "Sticky Information: A Model of Monetary Nonneutrality and Structural Slumps," NBER Working Papers 8614, National Bureau of Economic Research, Inc.
  5. Muscatelli, Vito Antonio & Spinelli, Franco, 2000. "Fisher, Barro, and the Italian Interest Rate, 1845-93," Journal of Policy Modeling, Elsevier, Elsevier, vol. 22(2), pages 149-169, March.

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