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

42 Pages Posted: 10 Nov 2002 Last revised: 28 Jun 2010

See all articles by Andrew B. Abel

Andrew B. Abel

University of Pennsylvania - Finance Department; National Bureau of Economic Research (NBER)

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: August 1981

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.

Suggested Citation

Abel, Andrew B. and Mishkin, Frederic S., An Integrated View of Tests of Rationality, Market Efficiency, and the Short-Run Neutrality of Monetary Policy (August 1981). NBER Working Paper No. w0726, Available at SSRN: https://ssrn.com/abstract=349119

Andrew B. Abel (Contact Author)

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Frederic S. Mishkin

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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United States

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