major role in business cycles. This area was a significant challenge because first, it seemed to be empirically important, and second, the equilibriu framework with flexible prices tends to generate a close approximation to monetary neutrality Initially, the approach seemed to achieve notable successes. On theoretical level, short-term real effects of monetary disturbances could arise from imperfect information about money and the general price level Monetary shocks, which affected the general price level in the same direction, could be temporarily misperceived as shifts in relative prices which led to ad justments in the supply of labor and other quantities. These real effects vanished in the long run, but could persist for awhile because of information lags and costs of adjusting the quantities of factor inputs On the other hand, anticipated monetary changes--which include systematic monetary policies--would not matter because they did not lead to informational confusions(Sargent and Wallace, 1975) On an empirical level, there was also evidence that appeared to support the approach. Monetary disturbances seemed to be important sources of business fluctuations, and there was some indication that it was mainly the unanticipated or surprise part of monetary movements that mattered for real variables(Barro,1981).Some cross-country evidence supported the theoretical predictions concerning the relation between the volatility of money and the slopes of estimated Phillips curves( Kormendi and Meguire The theory was al sistent with the observed absence of a substantial long-term relationship between real economic performance and the growth rates of money and prices; that is, with the absence of a long-run Phillips curve