Unanticipated money, output and prices in Greece

In this paper, we estimate and test a small neoclassical macromodel for Greece. The model incorporates the ‘natural rate’ hypothesis in that only unanticipated inflation can affect real output, and is ‘monetarist’ in nature, as the demand for output is derived from the demand for money function. The restrictions implied by the model cannot be rejected by either single equation or simultaneous equation tests. Thus, we find little evidence against the proposition that no monetary policy rule can affect real output once it becomes anticipated, and that the elasticity of prices with respect to money is unity.