Abstract
The Natural Rate Hypothesis (NRH) implies that unanticipated, but not anticipated, money stock changes can affect real economic activity. Recently, the NRH has been given a strong theoretical foundation by the New Classical Macroeconomics. Building from micro-foundations, authors such as Barro [4] assume that industry supply functions are expectations augmented so that money stock changes which are anticipated have no effects on industry output. Aggregating across sectors yields the hypothesis that anticipated money changes will not alter real Gross National Product. Using aggregate data, Barro [5] and Barro and Rush [6] obtained results which were interpreted as supporting the neutrality of anticipated money growth. The importance of Barro's empirical findings led to subsequent tests of the hypothesis. Results of several studies provided further support for the NRH [2; 3; 17] while Mishkin [14] and Hoffman and Schlagenhauf [12] obtained mixed results.'
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