Comovements in aggregate and relative prices: some evidence on neutrality
This paper develops an alternative test of the neutrality of anticipated monetary policy. A multi-good equilibrium model along the lines of Barro and Hercowitz is used to derive a neutrality proposition for anticipated movements in the aggregate price level and to demonstrate econometrically its equivalence to the exogeneity of relative prices with respect to the aggregate price level. Multivariate causality tests provide a basis for testing these restrictions. The empirical results provide mixed evidence for the equilibrium models, while the variation in the findings across industries suggests a role for supply-side disturbances in explaining comovements in aggregate and relative prices.
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- Hercowitz, Zvi, 1981.
"Money and the Dispersion of Relative Prices,"
Journal of Political Economy,
University of Chicago Press, vol. 89(2), pages 328-356, April.
- Zvi Hercowitz, 1980. "Money and the Dispersion of Relative Prices," NBER Working Papers 0431, National Bureau of Economic Research, Inc.
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- Zvi Hercowitz, 1980. "Money and Price Dispersion in the United States," NBER Working Papers 0433, National Bureau of Economic Research, Inc.
- Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
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- Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, vol. 86(1), pages 79-95, February.
- Cukierman, Alex, 1982. "Relative price variability, inflation and the allocative efficiency of the price system," Journal of Monetary Economics, Elsevier, vol. 9(2), pages 131-162.
- McCallum, Bennett T, 1979. "On the Observational Inequivalence of Classical and Keynesian Models," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 395-402, April.
- Barro, Robert J., 1976. "Rational expectations and the role of monetary policy," Journal of Monetary Economics, Elsevier, vol. 2(1), pages 1-32, January. Full references (including those not matched with items on IDEAS)
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