Long-run monetary neutrality under stochastic and deterministic trends

Daniel Ventosa-Santaulària and Antonio Noriega ()

Economic Modelling, 2015, vol. 47, issue C, 372-382

Abstract: This paper studies long-run monetary neutrality when long-horizon regressions (LHR) are used as a vehicle to test it. We assume that money and/or output can be generated according to widely used persistent models. We combine these specifications and study the divergence rate of the t-statistic as an indication of a spurious relationship between money and output, and show that the presence of spurious evidence of non-neutrality is highly likely. We then propose a correct inferential procedure for testing the null hypothesis of no relationship in a LHR (finite-sample and asymptotic evidence supports the procedure). The latter is then applied to an international data set on money and output in order to test for long-run monetary neutrality. We find that neutrality holds for all countries.

Keywords: Long-run monetary neutrality; LHR; Trending variables; Structural breaks (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0264999315000735
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:47:y:2015:i:c:p:372-382

DOI: 10.1016/j.econmod.2015.03.010

Access Statistics for this article

Economic Modelling is currently edited by S. Hall and P. Pauly

More articles in Economic Modelling from Elsevier
Bibliographic data for series maintained by Catherine Liu ().