Article: Testing long-run neutrality.

Key classical macroeconomic hypotheses specify that permanent changes in nominal variables have no effect on real economic variables in the long run. The simplest "long-run neutrality" proposition specifies that a permanent change in the money stock has no long-run consequences for the level of real output. Other classical hypotheses specify that a permanent change in the rate of inflation has no long-run effect on unemployment (a vertical long-run Phillips curve) or real interest rates (the long-run Fisher relation). In this article we provide an econometric framework for studying these classical propositions and use the framework to investigate their relevance for the ...

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