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Testing the hypothesis of long-run money neutrality in the Middle East

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  • George B. Tawadros
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    Abstract

    Purpose – The purpose of this paper is to test the hypothesis of long-run money neutrality for Egypt, Jordan and Morocco using seasonal cointegration techniques. Design/methodology/approach – The paper uses seasonal integration and cointegration techniques to test the neutrality of money hypothesis for three Middle Eastern economies, using quarterly data on money, prices and real income. The benefit of using this technique lies in its ability to distinguish between cointegration at different frequencies. Findings – The empirical results show that money is cointegrated with prices, but not with output at the zero frequency for Egypt, Jordan and Morocco. This suggests that money affects nominal but not real variables in the long run, implying that money is neutral in these three Middle Eastern economies. Practical implications – The implication of this finding for policy analysis suggests that the anti-inflationary policy prescription espoused by the monetarist school should be followed in these three Middle Eastern countries, in order to curb inflation. Originality/value – The paper provides further evidence in support of money neutrality using an unconventional approach for three developing Middle Eastern economies.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Economic Studies.

    Volume (Year): 34 (2007)
    Issue (Month): 1 (January)
    Pages: 13-28

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    Handle: RePEc:eme:jespps:v:34:y:2007:i:1:p:13-28

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    Related research

    Keywords: Egypt; Inflation; Jordan; Money; Morocco;

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    Cited by:
    1. Osama D. Sweidan, 2011. "Monetary policy inertia: case of Jordan," Journal of Economic Studies, Emerald Group Publishing, vol. 38(2), pages 144-155, May.

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