The Liquidity Effect and Long-Run Neutrality

Ben S. Bernanke and Ilian Mihov ()

No 6608, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The propositions that monetary expansion lowers short-term nominal interest rates (the liquidity effect), and that monetary policy does not have long-run real effects (long-run neutrality), are widely accepted, yet to date the empirical evidence for both is mixed. We reconsider both propositions simultaneously in a structural VAR context, using a model of the market for bank reserves due to Bernanke and Mihov (forthcoming). We find little basis for rejecting either the liquidity effect or long-run neutrality. Our results are robust over the space of admissible model parameter values, and to the use of long-run rather than short-run identifying restrictions.

JEL-codes: E5 E52 (search for similar items in EconPapers)
Date: 1998-06
Note: EFG ME
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Journal Article: The liquidity effect and long-run neutrality (1998)
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