Long-run monetary neutrality and long-horizon regressions
A prominent test of long-run monetary neutrality (LRMN) involves regressing long-horizon output growth on long-horizon money growth. We obtain limited support for LRMN with this test in long-annual Australian, Canadian, UK and US samples. Although empirical confidence intervals yield evidence in favour of LRMN, Monte Carlo experiments reveal the power of this test is near its size. Thus, this test is unlikely to detect important deviations from LRMN. These problems arise because the long-horizon regression test of LRMN relies on estimates of the covariance of long-horizon output growth and long-horizon money growth. Copyright © 2004 John Wiley & Sons, Ltd.
Volume (Year): 19 (2004)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.interscience.wiley.com/jpages/0883-7252/|
|Order Information:|| Web: http://www3.interscience.wiley.com/jcatalog/subscribe.jsp?issn=0883-7252 Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Timothy Cogley & Thomas J. Sargent, 2002.
"Evolving Post-World War II U.S. Inflation Dynamics,"
in: NBER Macroeconomics Annual 2001, Volume 16, pages 331-388
National Bureau of Economic Research, Inc.
- Timothy Cogley & Thomas Sargent, "undated". "Evolving Post-World War II U.S. Inflation Dynamics," Working Papers 2132872, Department of Economics, W. P. Carey School of Business, Arizona State University.
- Donald W.K. Andrews, 1986.
"Power in Econometric Applications,"
Cowles Foundation Discussion Papers
800, Cowles Foundation for Research in Economics, Yale University.
- Campbell, John, 2001.
"Why Long Horizons? A Study of Power Against Persistent Alternatives,"
3196341, Harvard University Department of Economics.
- Campbell, John Y., 2001. "Why long horizons? A study of power against persistent alternatives," Journal of Empirical Finance, Elsevier, vol. 8(5), pages 459-491, December.
- John Y. Campbell, 1993. "Why Long Horizons: A Study of Power Against Persistent Alternatives," NBER Technical Working Papers 0142, National Bureau of Economic Research, Inc.
- Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
- Valkanov, Rossen, 2003. "Long-horizon regressions: theoretical results and applications," Journal of Financial Economics, Elsevier, vol. 68(2), pages 201-232, May.
- Newey, W.K. & West, K.D., 1992.
"Automatic Lag Selection in Covariance Matrix Estimation,"
9220, Wisconsin Madison - Social Systems.
- Whitney K. Newey & Kenneth D. West, 1994. "Automatic Lag Selection in Covariance Matrix Estimation," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 631-653.
- Kenneth D. West & Whitney K. Newey, 1995. "Automatic Lag Selection in Covariance Matrix Estimation," NBER Technical Working Papers 0144, National Bureau of Economic Research, Inc.
- Coe, Patrick J. & Nason, James M., 2003. "The long-horizon regression approach to monetary neutrality: how should the evidence be interpreted?," Economics Letters, Elsevier, vol. 78(3), pages 351-356, March.
- Boschen, John F. & Mills, Leonard O., 1995. "Tests of long-run neutrality using permanent monetary and real shocks," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 25-44, February.
- Kirby, Chris, 1997. "Measuring the Predictable Variation in Stock and Bond Returns," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 579-630.
- Coe, Patrick J, 2002. "Financial Crisis and the Great Depression: A Regime Switching Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 76-93, February.
- Olekalns, Nilss, 1996.
"Some further evidence on the long-run neutrality of money,"
Elsevier, vol. 50(3), pages 393-398, March.
- Olekalns, N., 1995. "Some further Evidence on the Long Run Neutrality of Money," Department of Economics - Working Papers Series 465, The University of Melbourne.
- James B. Bullard, 1999. "Testing long-run monetary neutrality propositions: lessons from the recent research," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 57-77.
- Lucas, Robert E, Jr, 1996. "Nobel Lecture: Monetary Neutrality," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 661-682, August.
- Robert G. King & Mark W. Watson, 1997.
"Testing long-run neutrality,"
Federal Reserve Bank of Richmond, issue Sum, pages 69-101.
- Nelson, Charles R & Kim, Myung J, 1993. " Predictable Stock Returns: The Role of Small Sample Bias," Journal of Finance, American Finance Association, vol. 48(2), pages 641-661, June.
- Hodrick, Robert J, 1992.
"Dividend Yields and Expected Stock Returns: Alternative Procedures for Inference and Measurement,"
Review of Financial Studies,
Society for Financial Studies, vol. 5(3), pages 357-386.
- Tom Doan, "undated". "OLSHODRICK: RATS procedure to compute Hodrick standard errors," Statistical Software Components RTS00147, Boston College Department of Economics.
- Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-415, June.
- Serletis, Apostolos & Krause, David, 1996. "Empirical evidence on the long-run neutrality hypothesis using low-frequency international data," Economics Letters, Elsevier, vol. 50(3), pages 323-327, March.
- Haug, Alfred A & Lucas, Robert F, 1997. "Long-Run Neutrality and Superneutrality in an ARIMA Framework: Comment," American Economic Review, American Economic Association, vol. 87(4), pages 756-759, September.
When requesting a correction, please mention this item's handle: RePEc:jae:japmet:v:19:y:2004:i:3:p:355-373. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.