Premium
A MARKET‐BASED TEST OF THE EFFECT OF MONETARY POLICY
Author(s) -
LEVI MAURICE,
SHAPIRO ALAN C.
Publication year - 1987
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1987.tb00743.x
Subject(s) - economics , rational expectations , econometrics , monetary policy , phillips curve , money supply , money market , series (stratigraphy) , moneyness , short run , monetary economics , paleontology , biology
This paper tests the rational expectations‐natural rate hypothesis without basing expectations on time series estimates. Instead, market‐based data are used. Unexpected money supply changes are determined via the Fisher Effect and the Quantity Equation. This introduces errors of a very different kind than the traditional approach, and yet the results are remarkably similar to those generated using time series estimates. Unanticipated money shocks are shown to exert a significant but only short‐run effect on real output, suggesting only a short‐run Phillips curve trade‐off. Anticipated money growth appears to have no effect on real output.