Real Effects of Anticipated and Unanticipated Money: Some Problems of Estimation and Hypothesis Testing

The paper addresses two issues that arise in estimation of testing of the real effects of anticipated and unanticipated money. First it is shown that identification of the effects of unanticipated (or unperceived) monetary growth on real output is possible only if the a priori restrict ion is imposed that monetary growth does not depend on unanticipated (or unperceived) output. Second, it is shown that anticipated money can enter "semi-reduced form" output equations of the kind estimated by Barro, through three additional channels not allowed for in existing empirical work. These are 1) past and present anticipations of future monetary growth (the inflation tax channel), 2) expectations of monetary growth in a given period conditioned at various preceding dates (the Fischer-Phelps-Taylor effect) and 3) past and present revisions in forecasts of monetary growth (the Turnovsky-Weiss effect). The presence of the first of these would mean that alternative open-loop monetary growth rules have real effects. The presence of the other two implies that monetary feedback rules can have real effects.