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Long-run neutrality of money and inflation in Spanish economy, 1830-1998

Emilio Congregado () and Vicente Esteve
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Vicente Esteve: Departamento de Economia Aplicada II, Universidad de Valencia, Avda. dels Tarongers, s/n, 46022 Valencia, Spain

No 2104, Working Papers from Department of Applied Economics II, Universidad de Valencia

Abstract: In this article, we test a classical model of inflation with rational expec- tations for the case of Spain during the period 1830?1998. The principal testable implication is that money growth and inflation are cointegrated ruling out speculative bubbles. First, to detect episodes of potential explosive behaviour in the Spanish in?ation rate, we use the recursive unit root tests for explosiveness recently proposed by Phillips, Wu, and Yu (2011), and Phillips, Shi, and Yu (2015a,b). Second, we consider the possibility that a linear cointegrated regression model with multiple structural changes would provide a good empirical description of the classical model of in?ation for Spain over this long period. Our methodology is based on the instability tests recently proposed in Kejriwal and Perron (2008, 2010) as well as the cointegration tests developed in Arai and Kurozumi (2007) and Kejriwal (2008).

Keywords: Classical model of in?ation; Money demand; Money growth; In?ation; Explosiveness; Cointegration; Multiple structural breaks (search for similar items in EconPapers)
JEL-codes: C22 E31 E41 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-cba, nep-his, nep-mac and nep-mon
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