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Superneutrality in postwar economies

  • James Bullard
  • John Keating

A structural vector autoregression is employed to estimate the real output level response to permanent inflation shocks. We identify the model by assuming that in the long run, inflation is a monetary phenomenon. Well-known economic theory is used to establish this identification restriction. The model is estimated for a sample of 16 countries from the larger pool based on data quality, existence of long uninterrupted series on output and inflation, and evidence that the country experienced permanent shocks to inflation and output. The VAR is estimated for each country separately. We find some evidence of non-superneutrality, particularly for some low inflation countries, but in general our results suggest that superneutrality describes well most of the postwar economies we study.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 1994-011.

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Date of creation: 1994
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Publication status: Published in Journal of Monetary Economics, December 1995
Handle: RePEc:fip:fedlwp:1994-011
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  1. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September.
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  8. Stockman, Alan C., 1981. "Anticipated inflation and the capital stock in a cash in-advance economy," Journal of Monetary Economics, Elsevier, vol. 8(3), pages 387-393.
  9. Orphanides, Athanasios & Solow, Robert M., 1990. "Money, inflation and growth," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 6, pages 223-261 Elsevier.
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  17. Hahn, Frank, 1990. "On Inflation," Oxford Review of Economic Policy, Oxford University Press, vol. 6(4), pages 15-25, Winter.
  18. Geweke, John F, 1986. "The Superneutrality of Money in the United States: An Interpretation of the Evidence," Econometrica, Econometric Society, vol. 54(1), pages 1-21, January.
  19. Azariadis, Costas & Smith, Bruce D, 1996. " Private Information, Money, and Growth: Indeterminacy, Fluctuations, and the Mundell-Tobin Effect," Journal of Economic Growth, Springer, vol. 1(3), pages 309-32, September.
  20. David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis.
  21. De Gregorio, Jose, 1993. "Inflation, taxation, and long-run growth," Journal of Monetary Economics, Elsevier, vol. 31(3), pages 271-298, June.
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  24. James Bullard & Steve Russell, 1998. "Monetary steady states in a low real interest rate economy," Working Papers 1994-012, Federal Reserve Bank of St. Louis.
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