Skip to Main Content

Economic Quarterly

Summer 1997

Testing Long-Run Neutrality

Mark W. Watson and Robert G. King

Propositions about long-run neutrality are at the heart of macroeconomics. In the 1970s, Lucas and Sargent criticized traditional neutrality tests, suggesting that long-run propositions could not be tested without a detailed structural model. Yet, when nominal variables are integrated, long-run neutrality can be tested with limited structural information. Using a suitable econometric framework, we provide empirical tests of four long-run propositions: the neutrality of money, the superneutrality of money, the Fisher effect, and the vertical Phillips curve.

Subscribe to Economic Quarterly

Receive an email notification when Economic Quarterly is posted online:

Subscribe to Economic Quarterly

By submitting this form you agree to the Bank's Terms & Conditions and Privacy Notice.

Phone Icon Contact Us

Lisa Davis (804) 697-8179