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An Integrated View of Tests of Rationality, Market Efficiency, and the Short-Run Neutrality of Monetary Policy

Andrew Abel () and Frederic Mishkin ()

No 726, NBER Working Papers from National Bureau of Economic Research, Inc

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. Also discussed are the conditions for identification and the implications for whether hypotheses are testable.

Date: 1981-08
Note: EFG
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Published as Abel, Andrew B., Frederic S. Mishkin. "An Integrated View of Tests of Rationality, Market Efficiency, and the Short-Run Neutrality of Monetary Policy."Journal of Monetary Economics, Vol. 11, No. 1, (January 1983), pp. 3-24.

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