SFB 303 Discussion Paper No. B - 281
Author: Weber, Axel
Title: Testing Long-run Neutrality: Empirical Evidence for G7-Countries with
Special Emphasis on Germany
Abstract: Modern neo-Keynesian, new classical, and real business cycle models
typically differ in the degree to which they incorporate long-run or
short-run neutrality propositions. Despite their importance, little firm
international evidence on the validity of these neutrality hypotheses is
available to date. The paper applies a bivariate VAR approach to test the
long-run restrictions implied by a number of neoclassical neutrality
propositions. The evidence from the G7-countries appears to be consistent
with the long-run neutrality of money and the vertical Phillips-curve, but
the data largely refute the long-run superneutrality of money and the
'Fisher-effect' of inflation on interest rates.
Keywords: unit roots, vector autoregressions, long-run, neutrality,
superneutrality, 'Phillips-curve', 'Fisher-effect', 'Lucas-critique'
JEL-Classification-Number: E31, E43, E52
Creation-Date: Revised June 1994
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