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- Title
The Distributed Lag Effects of Monetary Policy on Interest Rates Using Harmonic Transformations with a Pretest.
- Authors
Hamlen, Susan S.; Hamlen Jr., William A.; Kasper, George M.
- Abstract
The consensus of opinion, beginning with Friedman [11], is that the effect can be separated into three components, the liquidity effect, the income effect and the Fisher effect. An issue of major contention is whether or not the duration and magnitude of these three components is relatively stable over longer periods of time or have discrete changes due to unanticipated economic and political events. A distributed lag model relating changes in the nominal interest rate to lagged changes in the growth rate of money has been the primary center of interest. However, empirical results have been somewhat confusing because while the three effects seem to exist when insignificant distributed lag coefficients are used, they are doubtful when all insignificant coefficients are excluded. This dilemma is usually attributed to the multicollinearity problem associated with distributed lag functions. In this paper a distributed lag method which virtually eliminates all multicollinearity problems and also provides a direct statistical test of the existence of the Fisher effect is tested and then applied to the above relationship with the time series divided into three distinct regimes based on a priori considerations.
- Subjects
LIQUIDITY (Economics); FISHER effect (Economics); ECONOMIC lag
- Publication
Southern Economic Journal, 1988, Vol 54, Issue 4, p1002
- ISSN
0038-4038
- Publication type
Article
- DOI
10.2307/1059534