anticipated monetary policy in canada some new evidence abstract in this note i examine the policy ineffectiveness proposition for canada using monthly income data due to milbourne et al 1988 i find that anticipated monetary policy altered the evolution of real output in canada recent work by ambler and phaneuf 1988 can be used to attribute this result to a purely new keynesian model of the business cycle although this inference is found to be fragile with respect to the choice of the level of significance used in the hypothesis tests

securitization of taxes implicit in payg pensions to preserve solvency a pay as you go payg pension system needs to adjust contribution rates and pension promises over time currently it is not possible to hedge in the financial market against politically determined uncertainty as regards these parameters i consider a policy reform whereby property rights are established on the implicit lifetime tax levied by payg finance and are assigned to the pension institution these property rights are well defined if the reform also features rule based allocation of aggregate risk in the form of defined contribution or defined benefit schemes i show that a payg pension system may indeed be instantly restructured so as to minimize political risk and allow financial market diversification of risk a side benefit is securitization of human capital flows which are not traded in existing financial markets the new securities if traded in appropriately competitive financial markets are complementary to the notional account reforms of the 1990s however fiscal instability can increase if securitization is implemented in the absence of initial solvency and credible adoption of rule based methods to allocate aggregate risk salvador valdes prieto

public pension reform in europe policies prospects and evaluation this paper describes the demographic and economic factors underlying the reform of public pension programmes in europe it examines the policy response both at the europe wide level and within individual european countries several programme reform strategies that have been implemented are evaluated these strategies are the greater pre funding of public pensions and expanded second tier private pension components parametric reforms to existing programmes and the development of formula driven actuarially fair public programmes efforts to provide greater incentives for individuals to postpone retirement are also discussed

key findings from the core north american scenarios in the emf34 intermodel comparison abstract within canada mexico or the united states policy making organizations are evaluating energy markets and energy trade within their own borders often by ignoring how these countries energy systems are integrated with each other these analytical gaps provided the main motivation for the energy modeling forum emf 34 study on north american energy integration and trade this paper compares north american results from 17 models and discusses their policy motivation oil and natural gas production in the three major countries are modestly sensitive to crude oil and natural gas price changes although these elasticities are below unity carbon taxes displace coal and some natural gas with renewables within all three power markets lower natural gas prices replace coal and some renewables with natural gas within electric generation higher intermittent renewable penetration in the power sector displaces coal and some natural gas a key conclusion is that much remains to be done in integrating future analyses and in sharing and improving the quality and consistency of the underlying data

an econometric investigation of the monetary neutrality and rationality propositions from an international perspective t he combination of the natural rate of unemployment and the rational expectations hypotheses in macroeconomic models results in the now well known conclusion that anticipated short run monetary stabilization policies do not influence real economic variables this policy ineffectiveness proposition has been named the macro rational expectations mre hypothesis by modigliani 1977 as a result the implicit policy prescription is that a price level stabilization policy should be pursued the empirical validity of this conclusion is perhaps the central issue in modern stabilization theory barro 1977 1978 1981 barro and rush 1980 and leiderman 1980 have presented empirical evidence for the united states supporting this proposition however a number of recent studies have claimed that previous empirical results which support the finding that anticipated policy is neutral are flawed corrections of these problems often result in conflicting conclusions see small 1979 gordon 1979 and mishkin 1982 given the important implications of the mre hypothesis it is curious that almost all formal testing has been focused upon the united states while barro has suggested that a cross country study would be useful as far as we know only darby 1980 attempts to test whether anticipated changes in monetary policy are neutral across countries unfortunately his results suffer from problems caused by using generated regressors in addition he makes no attempt to test the individual implications of the mre hypothesis which encompasses the propositions that expectations are rational lad anticipated monetary policy does not matter in this paper we employ the methodology developed by mishkin to test the mre hypothesis in six countries canada germany italy japan the united kingdom and the united states the paper is divided into three major sections and a conclusion section ii briefly reviews mishkin s testing method in section iii the procedure employed to specify the money growth equation is discussed and these equations specified section iv presents and discusses the results of applying the method introduced in section ii in the conclusion the major findings are restated possible limitations discussed and extensions suggested

a little bit more evidence on the natural rate hypothesis from the u k abstract the evidence for the neutrality of anticipated changes in monetary policy in the u k over the period 1963q1 1982q1 is examined breaks in the stochastic process generating the money stock are used to identify the model the results are generally unfavourable to the proposition that only unanticipated money matters

the holmes smyth effect some preliminary exercises with the uk demand for narrow money the primary purpose of this paper is to test a plausible data coherent representation of the consumption based model of the demand for money against and analogus representation of the standard income based formulation on the basis of non nested tests neither model canbe maintained consequently the possibility of tax cuts being contractionary the holmes smyth effect is still an open question

on the policy ineffectiveness proposition and a keynesian alternative a rejoinder i the basis of rush and waldo s rw results is the introduction of a war dummy variable in the dg equation this is however difficult to justify in the context of a rational expectations model under incomplete learning wars by their very nature are unique events and it is not clear how the public are supposed to learn the quantitative effects that the ending of three totally different wars may have had upon the growth of real government expenditure the fact that in i946 the public knew that world war ii was over does not mean that they could also estimate its precise quantitative effect on government expenditure rw estimate their dg equation using data for the whole of the period i943 73 and i943 85 thus implicitly assuming that all these data were available to the public in i946 for the computation of the coefficient of the war dummy in the dg equation but in i946 the public could not possibly have known about the timing and the intensities of the korean or the vietnam wars the assumption of complete learning that underlies the rational expectations hypothesis in general and rw s version of the nc model in particular is especially troublesome when the model contains dummy variables that correspond to unique events

financial market efficiency the decomposition of anticipated versus unanticipated money growth and further tests of the relation between money and real output note probably the most controversial empirical findings in macroeconomics in the last decade stem from robert barro s investigations into the relative effects of unanticipated versus anticipated money growth on unemployment and real output these studies generally proceed by decomposing observed money growth into what is defined to be its anticipated and unanticipated components and then test the restriction that only the unanticipated money measure has important effects for unemployment and real output in black box reduced form real side equations that include determinants of the natural rates of unemployment and real output as additional explanatory variables l the results of these tests for the annual postwar u s data generally cannot reject the hypothesis that only unanticipated money growth is important for the determination of aggregate real activity 2 anticipated money growth is found to be neutral for unemployment and real output these results are important because they give empirical support to the assertion that the apparent nonneutrality of observed money growth does not provide any firm basis for the efficacy of a systematic countercyclical monetary policy it should be clear that a crucial problem in testing for the neutrality nonneutrality of anticipated unanticipated money growth lies in developing an appropriate decomposition of observed money growth into its anticipated and unanticipated parts small 13 mishkin 8 and weintraub 14 among others have

a bayesian view of nominal money and real output through a new classical macroeconomic window this study investigates the empirical evidence on the effects of unanticipated changes in nominal money on real output in 47 countries when viewed through a window i e likelihood function that assumes the neutrality of anticipated changes using a bayesian predictivist approach it provides a pedagogical bayesian analysis of generated regressor models in the face of specification uncertainty involving among other things multiple unit roots and trend stationary alternatives

a non nested test of the new classical neutrality proposition for canada this paper uses a non nested testing technique to test the neutrality proposition of the new classical economics a new classical model and an alternative model are estimated and tested against each other the test results indicate that the alternative model rejects the new classical model and that the neutrality proposition cannot be supported empirically

a critique of the proposed tests of the natural rate rational expectations hypothesis the failure of the governments of most industrialised countries over the past decade to deal successfully with the problems of rising unemployment and high and often accelerating rates of price and wage inflation has revived interest in the pre keynesian macro economics of sound money and has renewed the controversy of the 1930 s over what governments should or should not do if they wish to achieve full employment with reasonable price stability in democratic societies keynesian economics has come under attack both by those who primarily oppose interventionist policies on ideological grounds and by the so called new classical macro economists who adhere to the natural rate of unemployment hypothesis nrh advanced by phelps i967 and friedman i 968 and the hypothesis of rational formation of expectations reh originally due to muth i96i armed with this joint natural rate rational expectations nr re hypothesis the new classical macro economists have argued that in a world capable of being represented by linear or log linear relations with a unique and stable equilibrium and no information discrepancy between the government and the private sector no government macro economic policy whether monetary or fiscal no matter how ingeniously formulated and how effectively implemented can have any systematic or lasting impact upon the level of output or the rate of unemployment 2 clearly this fundamental policy

the future of u s natural gas production use and trade two computable general equilibrium models one global and the other providing u s regional detail are applied to analysis of the future of u s natural gas the focus is on uncertainties including the scale and cost of gas resources the costs of competing technologies the pattern of greenhouse gas mitigation and the evolution of global natural gas markets results show that the outlook for gas over the next several decades is very favorable in electric generation given the unproven and relatively high cost of other low carbon generation alternatives gas is likely the preferred alternative to coal a broad ghg pricing policy would increase gas use in generation but reduce use in other sectors on balance increasing its role from present levels the shale gas resource is a major contributor to this optimistic view of the future of gas gas can be an effective bridge to a lower emissions future but investment in the development of still lower co2 technologies remains an important priority international gas resources may well prove to be less costly than those in the u s except for the lowest cost domestic shale resources and the emergence of an integrated global gas market could result in significant u s gas imports

policy impacts under rational expectations abstract this paper re examines for the u s the validity of the macro rational expectations mre hypothesis in contrast to most previous studies in this area the paper a considers the potential real effects of both monetary and fiscal policies b allows for possible endogeneity of these policies and c uses a joint non linear estimation methodology to distangle the hypothesis of rationality from that of neutrality the empirical results reject the joint mre hypothesis for both policies the results also indicate that policy non neutrality is the culprit behind such rejection this evidence offers further empirical support for macro rational expectations models where monetary and fiscal policies can due to some rigidities play a key role in stabilizing the real economy

the scourge of the monetarists kaldor on monetarism and on money nicolas kaldor s critique of monetarism from 1970 until his death is described and evaluated it is argued that subsequent events as well as empirical research vindicate his critique kaldor s critique of john maynard keynes s monetary theory is then seen as an extension of his radcliffe views and this paper argues that in this matter kaldor was mechanical in his modeling of the endogeneity of money supply it is suggested that the work of hyman minsky and victoria chick has the potential for further work in this area copyright 1989 by oxford university press

unit root hypothesis new classical and keynesian models abstract following perron econometrica 1989 57 1361 1401 the variables in the new classical and keynesian output equations are shown to be trend stationary therefore these models are evaluated for the united states with the standard non nested hypothesis tests the majority of these tests have rejected the new classical in favour of the keynesian approach

tests of rationality neutrality and market efficiency a monte carlo analysis of alternative test statistics abstract this paper examines the small sample properties of three testing strategies used to analyze the rationality monetary neutrality and market efficiency hypotheses we focus on the original two step barro test of the mre hypothesis formed entirely from ols results a test that employs the correct variance covariance formulae for these two step estimates and mishkin s fimle testing framework each test is examined under likely model respecifications the findings highlight the extensive bias incurred by drawing inferences from simple unadjusted two step estimates and reveal the relative power of all tests in identifying alternatives to the null hypotheses

from traditional db to notional dc systems the pension reform process in sweden italy and germany this paper provides a critical review of the pension reform strategy that turns defined benefits db public pay as you go systems into notional defined contribution ndc systems we show that properly designed ndc public pension systems contain powerful economic and political mechanisms that may facilitate pension reform but that the distinction between public ndc and db systems is more ambiguous than usually claimed jel h55 j14 j26

the relevance of unanticipated money growth in explaining output variation this paper tests a reduced form equation in which real gnp for the united states is explained by deviations of multi period m1 growth rates from ex ante expectations of those rates formed from one to eight quarters earlier the theoretical model is suggested by stanley fischer s 1977 article and may be thought of as a new keynesian model the equations are tested in both level and first difference specifications to allow for possible unit roots empirical results strongly support this model in preference to new classical and keynesian alternatives ex ante expectations or m1 growth are formed from multi period forecasts made by chase econometrics inc between 1970 and 1979

anticipated money unanticipated money and output 1873 1930 anticipated money unanticipated money and output 1873 1930 i introduction this paper examines the roles of anticipated and unanticipated money in the period between the civil war and the depression 1 such an examination is warranted for at least two reasons first estimation of the impact of anticipated and unanticipated money on output for historical periods can enhance our understanding of the responses of economic activity to these key variables 2 second recent work has shown that traditional historical estimates of output may be faulty see romer 1986a 1986b 1986c 1988 not only do most studies investigating the economic roles played by anticipated and unanticipated money concentrate on the post world war ii era those that discuss the period before world war ii such as rush 1985 1986 use traditional data indeed despite the interesting analyses by rush if the validity of the conventional data on output and unemployment for the era under consideration is rejected then virtually no results on the importance of monetary and real factors for economic activity are available for this important period thus further discussion of this topic is needed to answer two important questions what do the revised data show us about the historical economy do these revisions change the inferences drawn about monetary influences on economic activity the analysis presented here is comprehensive in that a wide range of output measures are employed both in terms of the types of output and in terms of the manner in which the output measures are constructed given this variety in the output measures consistent results on the effects of anticipated and unanticipated money across output measures indicate that conclusions drawn from the analysis are robust in particular the empirical results presented below support the following hypotheses i that anticipated m2 and monetary base growth have no effect on output regardless of the output measure used ii that unanticipated m2 and monetary base growth do effect output regardless of the output measure used and iii that changes in financial intermediation may be important for the evolution of output over time support for hypotheses i and ii is consistent with the monetary explanation of business cycles support for hypotheses iii may be consistent with real explanations of business cycles if exogenous shocks to the monetary production technology subsequently affect output 3 taken together the joint support for hypotheses i iii suggests that at a minimum neither the real nor the monetary explanations for historical u s business cycles can be discounted without additional work the remainder of the paper is organized as follows section ii presents a brief overview of the historical period under consideration along with a discussion of prior work on the effects of anticipated and unanticipated money on output determination during this time period section iii discusses the data and the methodology the empirical results are presented in section iv and the conclusions in section v ii overview the historical period the period under investigation 1873 1930 is one of substantial economic change banking panics the return to the gold standard the founding of the federal reserve system and world war i are some of the more important events occuring during this period we consider the role played by expected and unexpected money in output determination for several major subperiods while data availability largely determined the selection of these subperiods they generally correspond to major economic events despite the structural and institutional changes over the period we also examine the roles of anticipated and unticipated money growth in the determination of output over the entire time period to be valid tests of the impact of money growth on output require a reasonable degree of homogeneity in the economic environment

econometric issues in macroeconomic models with generated regressors the paper critically reviews the literature on the econometric issues raised by the use of generated regressors gr in empirical models the economic rationale for the use of gr is considered with examples being drawn from several macroeconomic examples including new classical macroeconomic ncm models which postulate monetary neutrality various estimation methods are discussed for models which include surprise or unexpected terms and the strengths and weaknesses of each approach are investigated drawing upon the work of mcaleer and mckenzie 1991 situations where the typically inefficient two step estimation 2se method will be efficient are highlighted problems of model misspecification and measurement errors are also investigated an empirical section highlights some of the dangers of using uncorrected 2se estimation results through a careful consideration of many recent attempts to test the ncm monetary neutrality hypothesis copyright 1993 by blackwell publishers ltd

non nested tests of new classical versus keynesian models further evidence this paper re runs the experiment conducted by dadkhah and valbuena 1985 using data generated by the australian canadian japanese swiss and swedish economies the aim of this exercise is to discriminate between new classical and keynesian accounts of the business cycle the results obtained in the present study are broadly supportive of dadkhah and valbuena s earlier findings in that the keynesian model generally outperforms the new classical alternative

money neutrality at aggregate and sectoral levels the natural rate hypothesis nrh implies that unanticipated but not anticipated money stock changes can affect real economic activity recently the nrh has been given a strong theoretical foundation by the new classical macroeconomics building from micro foundations authors such as barro 4 assume that industry supply functions are expectations augmented so that money stock changes which are anticipated have no effects on industry output aggregating across sectors yields the hypothesis that anticipated money changes will not alter real gross national product using aggregate data barro 5 and barro and rush 6 obtained results which were interpreted as supporting the neutrality of anticipated money growth the importance of barro s empirical findings led to subsequent tests of the hypothesis results of several studies provided further support for the nrh 2 3 17 while mishkin 14 and hoffman and schlagenhauf 12 obtained mixed results

a model of income unemployment and inflation for the usa a simple three equation macroeconomic model is developed to explain the dynamics of output umemployment and inflation for the usa the model is estimated with the annual data for 1946 1989 insights gained through some recent developments are used to specify and estimate the model

introduction north american natural gas markets in transition abstract over many decades energy markets have seen a variety of new technologies with the potential of replacing existing practices for providing conventional fossil fuels unlike synthetic fuels during the 1970s or hydrogen during the 2000s however hydraulic fracturing for producing natural gas shale resources has had a dramatic impact because it has been cost effective this article describes a model comparison effort organized by stanford s energy modeling forum and provides a brief overview of the principal findings by individual modeling teams that participated in the study

aggregate output capital and labor in the post war u s economy abstract new estimates of an aggregate long term production function for the post war u s economy are reported the results indicate that this long term aggregate production function exhibits a slight but statistically significant increasing returns to scale since virtually all econometric growth studies assume constant returns to scale my finding raises serious doubts about the validity of this common practice i also find that since the war real output has become more sensitive to changes in capital and less sensitive to changes in labor in particular i show that the long run capital and labor elasticities of real output are both in the range of 0 44 0 55 similar estimates for the capital and labor elasticities of output from earlier studies covering pre war and the inter war periods are 0 25 and 0 75 respectively

an integrated view of tests of rationality market efficiency and the short run neutrality of monetary policy abstract this paper analyzes an important class of models in which expectations play an important role topics included in the analysis are tests of 1 rationality of forecasts in either market or survey data 2 capital market efficiency 3 the short run neutrality of monetary policy and 4 granger causality in macroeconometric models the common elements of these tests are highlighted in particular cross equation tests for rationality or the short run neutrality of money are shown to be equivalent to more common regression tests in the literature these results demonstrate that the exact specification of the relevant information set used in rational forecasts is not necessary for the cross equation tests to have desirable asymptotic properties also discussed are the conditions for identification of coefficients and testability of hypotheses

the financial stability of notional account pensions a number of european countries are reforming their pension benefit formulas by adopting notional accounts these accounts are used to determine individual benefits but pay as you go financing is retained this paper addresses the belief that by choosing adjustment rules cleverly notional accounts can provide automatic financial equilibrium in the short run if this were true it would be a valuable advantage in terms of insulating the government budget from demographic pressures while insulating the pension budget from fiscal pressures it is shown that notional account benefit formulas cannot provide automatic financial equilibrium in the short run the paper also suggests that if indexing rules are chosen in a particular way and shocks revert rapidly to a mean the pension institution may achieve financial stability in the long run however long run stability is unlikely to be valuable because political interference occurs in the short run

non nested tests of three competing theories of business cycles this paper tests the keynesian new classical and real business cycle theories against each other as non nested hypotheses using quarterly data for the us covering the period 1959 1 1989 2 the results indicate that no one theory stands out as the dominant explanation of the business cycle this contrasts with the findings of earlier work which is mostly concerned with testing the keynesian against the new classical theory we find that the introduction of a third theory the real business cycle theory which accounts of real factors blurs the distinction between the demand sided keynesian and the new classical theories

unexpected monetary disturbances during the gold standard era abstract this empirical paper uses the barro methodology of estimating unexpected monetary shocks to determine the effect these shocks had on real output in the u s during the gold standard era between 1880 and 1913 it also investigates whether changes in a measure of financial intermediation had real effects the results indicate that neither expected nor unexpected money shocks affected output changes in financial intermediation however were significantly correlated with output this result lends support to theories which stress the endogeneity of broad measures of the money supply

sensitivity of natural gas deployment in the us power sector to future carbon policy expectations abstract one option for reducing carbon emissions in the power sector is replacement of coal fired generation with less carbon intensive natural gas combined cycle ngcc generation in the united states where there is abundant low cost natural gas supply increased ngcc deployment could be a cost effective emissions abatement opportunity at relatively modest carbon prices however under scenarios in which carbon prices rise and deeper emissions reductions are achieved other technologies may be more cost effective than ngcc in the future in this analysis using a us energy system model with foresight a version of the national energy modeling system or nems model we find that varying expectations about carbon prices after 2030 does not materially affect ngcc deployment prior to 2030 all else equal an important implication of this result is that under the set of natural gas and carbon price trajectories explored here myopic behavior or other imperfect expectations about potential future carbon policy do not change the natural gas deployment path or lead to stranded natural gas generation infrastructure we explain these results in terms of the underlying economic competition between available generation technologies and discuss the broader relevance to us climate change mitigation policy

does anticipated monetary policy matter an econometric investigation a heated debate has arisen over the policy ineffectiveness proposition associate with the work of lucas sargent and wallace it postulates that anticipated aggregate demand policy will have no effect on business cycle fluctuations so that one deterministic feedback policy rule is as good as any other from the point of view of stabilizing the economy this paper develops a methodology for empirically analyzing rational expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle

does the ndc scheme mimic the french point system after the implementation of the notional defined contribution ndc pension scheme in italy and sweden in the 90s some authors argued that its design merely replicates the functioning of the poin

the pound sterling us dollar exchange rate and the new abstract the theory that the exchange rate responds to the news content of the fundamental variables is tested the innovations in the monetary approach variables are proxied by arima residuals and the reduced form equation for the exchange rate is fitted by 2sls

comment on s valdes prieto the financial stability of notional account pensions in an important contribution to this journal valdes prieto 2000 has shown that the recently popular concept of notional accounts cannot guarantee short run financial stability of pay as you go financed public pension schemes in the sense of automatic budget equality for any given time path of the contribution rate in result 2 p 406 he states that notional accounts do not provide automatic financial balance in the short run when the credited notional interest rate is the growth rate of contribution revenue except for the steady state growth case in the proof he uses a table p 408 table 1 in which the maximum value of the ratio of expenditures to revenues of the pension plan is calculated for the case of a rising growth rate of contribution revenue this maximum ratio is always above 1 the author explains his finding as follows when the growth rate of contribution revenue is used as the notional interest rate which is credited to the stock of notional capital of those members reaching age 65 the rise in expenditure is greater than the rise in revenue generating a deficit ibid the following simple example confirms result 2 but shows that the ratio of expenditures to revenues behaves in the opposite way to that asserted by valdes prieto a rise in the growth rate of revenues leads to a temporary surplus of the plan whereas a fall in the growth rate implies a temporary deficit the example is based on a discrete time 3 olg model in which individuals work the first two periods of their three period life earning 1 dollar each and the contribution rate 0 is fixed at 20 percent contributions are credited to the notional account in the period in which they are paid and earn an interest equal to the growth rate of contribution revenue which is credited to the account at the beginning of the next period at the beginning of the third period the account balance is paid out as a one shot retirement benefit in panel a of table 1 it is assumed that there are 100 workers in each of the cohorts entering the labor market in period t 2 and that this number

the nature of the adas model based on the islm model the aggregate demand and supply model adas is interpreted as a synthesis of the keynesian and neoclassical models it uses the islm model without explaining its nature to derive aggregate demand ad it is combined with an aggregate supply as curve to explain price inflation and output dynamics this paper argues that neither the ad nor as curve is conceptually the same as its microeconomic counterpart and adas is not a synthesis in fact adasimplies that discretionary policy is necessary and that price changes do not perform their traditional negative feedback function

modelling price expectations an important difference between policy prescriptions based on different macroeconomic models relates to the way in which expectations are modelled in turn different approaches to expectations formation can be characterized in terms of the information available to agents and thus it becomes important to look at as many dimensions of the information set as possible because of the paucity of direct information on expectations many studies have concentrated on the few series of this nature which are available of paramount importance here is the livingston survey data on consumer price expectations however it is argued here that much previous work using these data is flawed through an inadequate consideration of the frequency on which expectations are formed and the information on which they are based

the gains from pension reform we classify social security pension systems in three dimensions actuarial versus non actuarial funded versus unfunded and defined benefit versus defined contribution systems recent pension reforms are discussed in terms of these dimensions shifting to a more actuarial system reduces labor market distortions although limiting the scope for redistribution shifting to a funded system may increase saving redistribute income to future generations and distort contermporary labor supply a partial shift to a funded system helps individuals diversify their pension assets a shift from a defined benefit to a defined contribution system means that income risk will be shifted from workers to pensioners

on the robustness of barro s new classical unemployment model in this paper the robustness of barro s new classical model of unemployment is examined using both two and three equation systems to various sample periods and methods of estimation the methods of estimation used are two step ols two step ols with correct standard errors using the same and different numbers of observations for the expectations and structural equations full information maximum likelihood and four novel variants of the computationally intensive parametric bootstrap method not surprisingly the empirical results for barro s model change according to the sample period chosen the different methods of estimation and the different ways of computing the covariance matrix for purposes of inference however the empirical results and inferences are generally robust to variations in any or all of these options

on the policy ineffectiveness proposition and a keynesian alternative one of the most controversial macroeconomic developments of the last decade has been the rise of the so called new classical nc approach to macroeconomic theory and policy lucas i972 sargent and wallace i975 and barro i 976 have presented models which combine the friedman i968 phelps i970 natural rate theory with assumptions of market clearing and rational expectations as is well known these models deliver the striking result that the mean values of real variables cannot be affected by the government s monetary policy the publication of the theoretical work establishing the impotency result led to much empirical testing of the nc models one of the most successful approaches from the point of view of nc advocates is contained in a series of papers by barro i977 i978 i98i barro and rush i980 and rush i986 recently pesaran i982 has questioned barro s results and claimed that once an implausible assumption is discarded barro s work can be rejected in favour of a keynesian alternative because pesaran has put forth an explicit counter model to barro s work his results are potentially quite important this paper examines in detail pesaran s work and conclusions

trends random walks and the expectations augmented phillips curve evidence from six countries two major empirical results are reported first it is shown that time series measuring real activity in major industrialized countries contain nonstationarities of the random walk type second it turns out that the estimated influence of unexpected changes in inflation and monetary growth strongly depends on the chosen approach concerning nonstationarity the popular assumption of a deterministic time trend proxying for growth generally yields the hypothesized positive coefficients the influence of nominal surprises however becomes indistinguishable from zero if the respective equations are estimated in stationary differences of real activity variables copyright 1988 by ohio state university press

forecasting rational expectations and the phillips curve an empirical investigation abstract the rational expectations version of the phillips curve is empirically evaluated for switzerland using a wide variety of specifications it turns out that the results are highly sensitive to measurement of both the natural rate and expectations of nominal variables no reliable phillips curve seems to exist in addition information on the relative quality of different forecasting schemes is obtained for a number of important macroeconomic variables

do prices lead money a reexamination of the neutrality hypothesis do prices lead money a reexamination of the neutrality hypothesis in one class of theoretical models real effects 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 i introduction the revolution in macroeconomics inspired by the theory of rational expectations called into question the ability of systematic monetary policy to affect real economic variables much research has been devoted to the issue of policy effectiveness in the last decade and many examples have been constructed that demonstrate the theoretical possibility of nonneutrality even when expectations are formed rationally one result of this research has been to demonstrate that the expectation of a future change in the money growth rate can cause a change in the current value of real output in these models an expected change in money growth at some point in the future results in a change in the price level in all time periods prior to the change in the money growth rate this phenomenon of prices leading money see brock 1974 751 results in a change in real money balances in each time period prior to the expected change in the money growth rate and the change in real money balances results in nonneutral changes in real output in order for the nonneutrality result to hold in this class of models it is essential that the expected change in money growth be in some future time period so that prices and hence real balances change prior to the change in the money growth rate when the change in money growth is expected to occur in the current time period rather than in the future prices and the money supply change proportionately leaving the value of real balances unchanged in this case there is no change in real output this difference in the theoretical predictions concerning the neutrality of expected future and expected current changes in the money growth rate has implications for empirical tests of the neutrality hypothesis according to these models such tests ought to examine the significance of the relationship between the current value of real output and expected future changes in money growth tests of the neutrality hypothesis performed in the past such as those by barro 1977 1978 mishkin 1982 1983 and hoffman and schlagenhauf 1982 have examined the significance of the empirical relationship between the current value of real output and the expected current money growth rate thus these empirical models do not capture the crucial distinction between current and future changes in money growth rates this paper develops an empirical model based on expected future rather than expected current changes in the money growth rate in the real output equation and then reexamines the neutrality hypothesis the issue of whether expectations are formed rationally is also important in the analysis of the empirical evidence for the neutrality hypothesis as mishkin 1982 1983 points out the neutrality hypothesis has little meaning without a theory of expectation formation in light of this tests of the rationality hypothesis as well as the joint hypothesis of rationality and neutrality known as the macro rational expectations hypothesis 1 mre are also conducted ii theoretical models of nonneutral money in many equilibrium rational expectations models the neutrality of money depends upon whether an expected change in the money supply is in the current or some future time period

unanticipated money growth and unemployment post sample forecasts in the late 1970s robert j barro published what has since become a popular model of business fluctuations barro s 3 findings provide evidence advocating the short run neutrality of money under rational expectations forging an important empirical link to the theoretical studies of lucas 19 20 and sargent and wallace 33 the original barro unemployment model has received additional support from further statistical testing 5 6 15 despite criticisms and modifications some of which are considered in barro s 6 updated model these equations have inspired numerous empirical studies analyzing unanticipated effects of macroeconomic variables this paper examines post sample forecasts of barro s original 3 and revised 6 unemployment equations for the 1974 84 period mayer 23 24 harvey 13 179 80 and lovell 18 among many contend that the ability to successfully forecast outside of the sample period is an important criterion for evaluating model robustness this view is also reflected in a substantial body of studies including 10 25 26 29 39 which investigate the post sample predictive performance of macroeconomic models one year ahead forecasts indicate that the barro 3 6 equations accurately predict unemployment for the 1974 79 period during 1980 84 however the predictive performance of both models sharply deteriorates augmenting the barro models with interest rate volatility in accordance with the findings of evans 11 and tatom 38 considerably improves the overall forecasting ability this modification also rectifies the 1980s structural instability of the barro unemployment equations furthermore the basic conclusions of the seminal barro work are retained with this augmented model the results reveal that increases in interest rate volatility exert significantly adverse effects upon unemployment corroborating with the findings of evans 11 and tatom 38 still interest rate volatility could be overlooked in previous estimations of the barro or other models of business fluctuations due to the variable s relative constancy prior to 1979

anticipated money inflation uncertainity and real economic activity this paper critically examines a number of maintained hypotheses that are necessarily being tested along with the basic notion derived from the rational expectations re formulation of lucas 1972 19 73 that only unanticipated money matters the trend stationary representation of secular real output of lucas and others is replaced by a difference stationary representation found by nelson and plosser 1980 to be consistent with u s historical data the impact of inflation uncertainty on real activity is considered attention is paid to possible mis measurement of agents ex ante anticipated money growth it is found that three alternative measures of anticipated money growth produce a stable impact on growth of output and employment contemporaneous and lagged values of unanticipated money growth have no significant additional explanatory power in the presence of any one of the three measures of anticipated money growth beyond this it is impossible to reject the hypothesis that the initial positive real impact of anticipated money is not temporary inflation uncertainty is found to act as a significant depressant of real economic activity in the presence of all tested combinations of anticipated and unanticipated money growth this abstract was borrowed from another version of this item