The Neutrality Properties of Competing Relative Price Models: Tests Using Linear Feedback

This article uses a variant of Geweke's (1982) linear feedback measure to test common characterizations of monetary neutrality implicit in classes of relative price models. The neutrality properties are defined in terms of relative price changes' response to monetary policy shocks in a system including average price changes, an interest rate, and industrial production growth. The magnitude and patterns of monetary feedback found in U.S. relative price data provide no support for any of the structurally neutral models.