Canadian evidence on long-run neutrality propositions

The empirical methodology developed by King and Watson (1992) is employed to test the validity of a number of long-run neutrality propositions in the Canadian context. We test for long-run money neutrality, the vertical long-run Phillips curve, and the long-run Fisher relationship using quarterly post-WWII data for the Canadian economy. We find evidence against the last two propositions. The evidence is particularly strong in rejecting the vertical long-run Phillips curve and appears to be consistent with a high degree of hysteresis in the Canadian rate of unemployment.