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College of Liberal Arts and Sciences | Mathematics

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January 14, 2019 | 2:45 p.m. - 4:00 p.m.
Category: Lecture
Location: Faculty/Administration #1140 | Map
656 W. Kirby
Detroit, MI 48202
Cost: Free

Speaker: Liang Hu, Professor of Economics, Wayne State University

Title: Testing Monetary Neutrality: A Reappraisal of the Evidence


The long-run neutrality of money is a central proposition in macroeconomics, which states that whatever the short-run effects of variations in the money stock, those short-run effects will ultimately disappear as markets and expectations adjust, leaving all real magnitudes in the economy unaffected by any permanent change in the level of the money stock. In this paper, we first provide a critical evaluation of two leading tests for monetary neutrality in the literature. We then empirically assess the robustness of both tests to temporal data aggregation, data frequency, and structural change. We discover that the neutrality result from each method is time varying, especially after abrupt monetary policy changes. Temporal aggregation sometimes leads to mixed results using the VAR approach. Moreover, after we allow for fractional integration in the data, we discover that the empirical evidence against monetary neutrality mostly comes from temporal data aggregation.

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