Does Anticipated Monetary Policy Matter? An Econometric Investigation

Frederic S. Mishkin

NBER Working Paper No. 506 (Also Reprint No. r0294)
Issued in July 1980
NBER Program(s):Economic Fluctuations and Growth

Recent theorizing with business cycle models which incorporate features of the Friedman-Phelps natural rate model along with rational expectations lead to the following policy conclusions. Anticipated changes in aggregate demand policy will have already been taken into account in economic agents behavior and will thus evoke no further output or employment response. Therefore, deterministic feedback policy rules will have no impact on output fluctuations in the economy. These policy implications of what Modigliani has dubbed the Macro Rational Expectations (MRE) hypothesis are of such importance that a wide range of empirical research is needed for its verification or refutation. Recent empirical work has tested the "neutrality" implication of the MRE hypothesis that anticipated monetary policy does not affect output or unemployment. Although this empirical work has frequently been favorable to the MRE hypothesis, it suffers from several deficiencies that create suspicion about the robustness of the results. This paper is an attempt to conduct an econometric investigation of the implications of the MRE hypothesis which does not suffer from these deficiencies. The results here strongly reject the neutrality implications of the MRE hypothesis: unanticipated movements in monetary policy are not found to have a larger impact on output and unemployment than anticipated movements. This evidence casts doubt on previous evidence that is cited as supporting the view that only unanticipated monetary policy is relevant to the business cycle.

download in pdf format
   (494 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w0506

Published: Mishkin, Frederic S. "Does Anticipated Monetary Policy Matter? An Econometric Investigation." Journal of Political Economy, Vol. 90, No. 1, 1982), pp. 22-51. citation courtesy of

Users who downloaded this paper also downloaded* these:
Romer and Romer Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz
Mishkin w0789 Does Anticipated Aggregate Demand Policy Matter? Further Econometric results.
Grossman and Weiss w0973 A Transactions Based Model of the Monetary Transmission Mechanism: Part 1
Barro and Rush Unanticipated Money and Economic Activity
Mishkin w5464 The Channels of Monetary Transmission: Lessons for Monetary Policy
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us