Testing Long-Run Neutrality Hypothesis In China

The long-run neutral theory insiststs that the nominal variable permanent changes does not have the real effect in the long-run, the rational expectations school even declared, even if the nominal variable cannot affect the real variable in the short-run. Many foreign researches are about the long-run neutrality empirical aspect, more domestic concentrates about the neutral theory's verification in the neutrality of money the field. While the author combines the neutrality of money, the superneutrality of money, the long-run phillips curve's verticality and the fisher effect these long-run neutrality classical hypothesis testing in an article, which has profited from King and Watson(1997) research content for the first time in domestic, and obtained about the Chinese macroeconomy long-run neutral some expierence facts.In this article, based on the Chinese 1952-2007 annual data and stages data, the author has used internationally the monetary economics field mature econometric methods whose King and Watson(1997) have used, and pays more attention to the robustness throughout in the article, obtained the high robust and reliable conclusion. The monetary neutrality and the monetary superneutrality highly are remarkable in the sample time in the long-run, the quantity of money supply change and the money supply growth rate's change has not delivered the output effect. The "inflation rate-output gap curve" based on the Okun's law and the "inflation rate-unemployment rate curve" both testing indicated that does not have the evidence support long-run inflation rate to be able to affect output gap rate, the inflation rate and the unemployment rate do not exist trade-off, long-run Phillips curve is steep. The fisher effect testing indicated that the inflation rate to nominal interst rate's transmission degree relies on the inflation level interval, which has the part of transmission effect at least and does not have the significant evidence against the transmission between the inflation rate to the nominal interest rate. Four classical neutral hypothesis joint testing indicated that the long-run neutrality is tenable in China, and there is no fundamental difference from the standard modern marketing country's research conclusions.