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Long-Run Money and Inflation Neutrality Test in Indonesia

Author

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  • Arintoko

    (Universitas Jenderal Soedirman)

Abstract

This paper investigates long-run neutrality of money and inflation in Indonesia, with due consideration to the order of integration, exogeneity, and cointegration of the money stock-real output and the money stock-price, using annual time-series data. The Fisher-Seater methodology is used to do the task in this research. The empirical results indicate that evidence rejected the long-run neutrality of money (both defined as M1 and M2) with respect to real GDP, showing that it is inconsistent with the classical and neoclassical economics. However, the positive link between the money and price in long run holds for money defined as M1 rather than M2, which consistent with these theories. In particular, besides the positive effect to long-run inflation, monetary expansions have long-run positive effect on real output in the Indonesian economy.

Suggested Citation

  • Arintoko, 2011. "Long-Run Money and Inflation Neutrality Test in Indonesia," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 14(1), pages 1-26, July.
    • Handle: RePEc:idn:journl:v:14:y:2011:i:1h:p:1-26
    DOI: https://doi.org/10.21098/bemp.v14i1.79
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    Citations

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    Cited by:

    1. Kuek, Tai Hock, 2016. "A Review of Literature on Monetary Neutrality - The case of India," MPRA Paper 71962, University Library of Munich, Germany, revised 13 Jun 2016.
    2. Nwanne, Nkem, 2017. "An Examination of the Neutrality of US Money Supply on the Nigerian Economy," MPRA Paper 82227, University Library of Munich, Germany.
    3. Emna Trabelsi, 2022. "Macroprudential Transparency and Price Stability in Emerging and Developing Countries," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(1), pages 105-129.
    4. Wong, Soon-Ming & Loi, Siew-Ling, 2016. "Money Influence on Real Economy Activity: Evidences Review on Japanese Context," MPRA Paper 73559, University Library of Munich, Germany.

    More about this item

    Keywords

    long-run neutrality of money; inflation; unit root; exogeneity; cointegration;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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