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Panel cointegration and the neutrality of money

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Author

Summary, in English

Most econometric methods for testing the proposition of long-run monetary neutrality rely on the assumption that money and real output do not cointegrate, a result that is usually supported by the data. This paper argues that these results can be attributed in part to the low power of univariate tests, and that a violation of the noncointegration assumption is likely to result in a nonrejection of the neutrality proposition. To alleviate this problem, two new and more powerful panel cointegration tests are proposed that can be used under quite general conditions. The empirical results obtained from applying these tests to a panel covering ten countries between 1870 and 1986 suggest money and real output are cointegrated, and hence that the neutrality proposition must be rejected.

Publishing year

2009

Language

English

Pages

1-26

Publication/Series

Empirical Economics

Volume

36

Issue

1

Document type

Conference paper

Publisher

Physica Verlag

Topic

  • Economics

Keywords

  • Monetary neutrality
  • Panel cointegration testing

Conference name

2nd Italian Congress of Econometrics and Empirical Economics

Conference date

2007-01-25 - 2007-01-26

Status

Published

ISBN/ISSN/Other

  • ISSN: 0377-7332