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The liquidity effect and long-run neutrality

Listed author(s):
  • Bernanke, Ben S.
  • Mihov, Ilian

The propositions that monetary expansion lowers short-term nominal interest rates (the liquidity effect), and that monetary policy does not have long-run real effects (long-run neutrality), are widely accepted, yet to date the empirical evidence for both is mixed. We reconsider both propositions simultaneously in a structural VAR context, using a model of the market for bank reserves due to Bernanke and Mihov (forthcoming). We find little basis for rejecting either the liquidity effect or long-run neutrality. Our results are robust over the space of admissible model parameter values, and to the use of long-run rather than short-run identifying restrictions.

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Article provided by Elsevier in its journal Carnegie-Rochester Conference Series on Public Policy.

Volume (Year): 49 (1998)
Issue (Month): 1 (December)
Pages: 149-194

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Handle: RePEc:eee:crcspp:v:49:y:1998:i::p:149-194
Contact details of provider: Web page: http://www.elsevier.com/locate/jme

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