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DO PRICES LEAD MONEY? A REEXAMINATION OF THE NEUTRALITY HYPOTHESIS
Author(s) -
THOMAS MARK A.
Publication year - 1989
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.1465-7295.1989.tb00778.x
Subject(s) - economics , neutrality , rationality , sample (material) , macro , econometrics , philosophy , chemistry , epistemology , chromatography , political science , computer science , law , programming language
In one class of theoretical models, real epects occur only if changes in money growth are expected to occur in some future period, if expected in the current period, they are neutral. Some empirical models examine the neutrality of expected current money growth and therefore do not directly address the neutrality of expected future growth. This paper develops an empirical model that explicitly incorporates expected future changes in money growth. A reexamination of the rationality, neutrality, and macro‐rational expectations hypotheses over a sample of four countries suggests that the use of expected future money growth results in strong rejections of the neutrality hypothesis.