Policy Ineffectiveness: Tests with Australian Data.

This paper tests, using Australian data, the proposition that only unanticipated monetary growth infl uences real variables. The methodology used is that of L. Leiderman ( 1980) and F. S. Mishkin (1982). In tests using the unemployment rate as a real variable, it is found that the data decisively reject the p olicy-ineffectiveness proposition and its subsidiary hypotheses of st ructural neutrality and rational expectations. This confirms results obtained for Australia by J. Horne and I. M. McDonald (1984) using a different approach. The results are found to be robust with respect t o choice of lag length and choice of monetary aggregate but not with respect to choice of real variable-the results are mixed when the une mployment rate is replaced by the rate of growth of real GDP. Copyright 1987 by Blackwell Publishers Ltd/University of Adelaide and Flinders University of South Australia