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Empirical Evidence on Nominal Wage and Price Flexibility

Timothy Cogley

The Quarterly Journal of Economics, 1993, vol. 108, issue 2, 475-491

Abstract: This paper tests a necessary condition for the neutrality of money in a framework that imposes only weak restrictions on the money supply process. It extends Bernanke's [1986] work by weakening the set of just-identifying restrictions and by providing a statistical test of the overidentifying restrictions. Instead of specifying a structural model to identify primitive shocks, I deduce the impact effects of structural money shocks under the neutrality hypothesis and then test whether the system maintains neutrality as it propagates these impact effects. The tests reject neutrality for both the M1 and the monetary base.

Date: 1993
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The Quarterly Journal of Economics is currently edited by Robert J. Barro, Lawrence F. Katz, Nathan Nunn, Andrei Shleifer and Stefanie Stantcheva

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