terval may encompass many quarters, depend-
ing upon the parameters of the above relation.
Table 2 summarizes the results of these es-
timations of relation (4): the first column lists
the ultimate impact of an (unanticipated) in-
crease of one percent in current money upon
future money, while the second and third col-
umns give measures of the significance and
goodness of fit of the time-series models. In
addition, Appendix Table A.l gives the esti-
mated impact of this increase upon the ex-
pected level of the money stock after four,
eight, twelve, and sixteen quarters. Again note
that the horizon over which permanent money
is calculated is unknown and may vary across
countries, so that the ultimate impacts listed
in Table 2 are only approximations of their
perceived impacts upon permanent money as
defined earlier.28 Also, the magnitudes of the
estimates are often quite sensitive to the pre-
cise specification of the relation between cur-
rent and past money growth used to estimate
the long-run impacts. For both these reasons,
our results are most meaningful for what they
indicate about the relative persistence of
money changes for a given country over the
two time periods. Conclusions based upon the
absolute magnitudes of the impacts, and to a
lesser extent cross-country comparisons, are
probably less meaningful.
In view of our earlier hypotheses, the results
reported here are at best very mixed. For most
countries, the long-run impact of a change in
current money upon the level of future money
increased between the earlier and later pe-
riods. The increase was quite sharp for Bel-
gium, Germany, Italy, Japan, and the U.S.—
countries which also showed an increase for
the measured impact of money upon prices.
However, the current money-future money im-
pacts actually fell for France and Switzerland,
although they showed an increase for the long-
run effect of money on prices. Canada’s results
also were not consistent, and indeed those for
the first period were dynamically unstable; see
note 4 to Table 2. (With a slightly modified
version of the Canadian model, the long-run
impact for the first period was negative, im-
plying that an initial rise in money leads ulti-
mately to a fall in its level, while the impact
was positive and well above unity in the second
period.) Again, some of our results seemed
implausible. For example, the long-run impact
reported for the U.S. in Table 2 was below
that found for most foreign nations, while the
Table 1 results would suggest that the opposite
pattern should hold, at least for the earlier
period. The lack of clear-cut results perhaps
should not be surprising, since stringent con-
ditions would have to apply if the results of
the money-inflation relation and current money-
future money relation were to correspond.
One plausible explanation may be that individ-
uals use variables other than the money supply
itself to forecast future money. In any event,
the results suggest that either the theory de-
veloped earlier is over-simplified,29 or at least
that the monetary authorities’ reactions to
other economic variables must be accounted
for explicitly, both in modeling individuals’
forecasts of permanent money and in estimat-
ing the money-inflation relation (1).
Taken as a whole, our results reveal more
possibilities than answers. The fact that the
measured impact of money on prices is gen-
erally not unity is more consistent with the
hypothesis that expectations about permanent
money affect the relation between inflation and
current and past money growth, than it is with
the mechanistic view that the relation is the
same regardless of whatever policy is followed.
Furthermore, these long-run impacts generally
shift between fixed-and floating-rate periods-—
and shift in a fashion that is compatible with
our arguments as well as with widely-held
views about exchange-rate implications for na-
tional monetary policies. Finally, our argu-
ments are consistent with the Keran-Zeldes
finding that money’s impact upon prices is gen-
erally above unity under a floating-rate regime.
However, our actual measurements of the per-
sistence of money changes do not accord very
well with the theory outlined here. In view of
the crudeness of these estimates, further de-
velopment and testing of models relating
money forecasts to prices seems warranted.
42