TY  - JOUR
AU  - Bernanke,Ben S.
AU  - Mihov,Ilian
TI  - The Liquidity Effect and Long-Run Neutrality
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 6608
PY  - 1998
Y2  - June 1998
UR  - http://www.nber.org/papers/w6608
L1  - http://www.nber.org/papers/w6608.pdf
N1  - Author contact info:
Ben S. Bernanke
E-Mail: Rita.C.Proctor@frb.gov

Ilian Mihov
INSEAD
1 Ayer Rajah Avenue
Singapore 138676
Singapore
E-Mail: ilian.mihov@insead.edu
AB  - The propositions that monetary expansion lowers short-term nominal interest rates (the liquidity effect), and that monetary policy does not have long-run real effects (long-run neutrality), are widely accepted, yet to date the empirical evidence for both is mixed.  We reconsider both propositions simultaneously in a structural VAR context, using a model of the market for bank reserves due to Bernanke and Mihov (forthcoming).  We find little basis for rejecting either the liquidity effect or long-run neutrality.  Our results are robust over the space of admissible model parameter values, and to the use of long-run rather than short-run identifying restrictions.
ER  -