Panel Cointegration and the Neutrality of Money
AbstractMost 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 very general conditions. The tests are then applied to a panel covering 10 countries between 1870 and 1986. The results suggest money and real output are cointegrated, and that the neutrality proposition therefore must be rejected.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by Lund University, Department of Economics in its series Working Papers with number 2006:18.
Length: 27 pages
Date of creation: 09 Aug 2006
Date of revision:
Publication status: Published as Westerlund, Joakim and Mauro Costantini, 'Panel Cointegration and the Neutrality of Money' in Empirical Economics, 2009, pages 1-26.
Contact details of provider:
Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden
Phone: +46 +46 222 0000
Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en
More information through EDIRC
Monetary Neutrality; Panel Cointegration Testing;
Other versions of this item:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-09-30 (All new papers)
- NEP-CBA-2006-09-30 (Central Banking)
- NEP-ECM-2006-09-30 (Econometrics)
- NEP-ETS-2006-09-30 (Econometric Time Series)
- NEP-MAC-2006-09-30 (Macroeconomics)
- NEP-MON-2006-09-30 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Weber, Axel A, 1994. "Testing Long-run Neutrality: Empirical Evidence for G7 Countries with Special Emphasis on Germany," CEPR Discussion Papers 1042, C.E.P.R. Discussion Papers.
- Robert King & Mark W. Watson, 1992.
"Testing Long Run Neutrality,"
NBER Working Papers
4156, National Bureau of Economic Research, Inc.
- Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, .
"Some Cautions on the Use of Panel Methods for Integrated Series of Macro-Economic Data,"
170, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Anindya Banerjee & Massimiliano Marcellino & Chiara Osbat, 2004. "Some cautions on the use of panel methods for integrated series of macroeconomic data," Econometrics Journal, Royal Economic Society, vol. 7(2), pages 322-340, December.
- Banerjee, A. & Marcellino, M. & Osbat, C., 2000. "Some Cautions on the Use of Panel Methods for Integrated Series of Macro-economic Data," Economics Working Papers eco2000/20, European University Institute.
- Evans, Paul, 1996.
"Growth and the Neutrality of Money,"
Springer, vol. 21(1), pages 187-202.
- Jushan Bai & Serena Ng, 2001.
"A PANIC Attack on Unit Roots and Cointegration,"
Boston College Working Papers in Economics
519, Boston College Department of Economics.
- Serletis, A & Moustas, Z, 1997.
"International Evidence on the Neutrality of Money,"
9704, Calgary - Department of Economics.
- Matei Demetrescu & Uwe Hassler & Adina-Ioana Tarcolea, 2006. "Combining Significance of Correlated Statistics with Application to Panel Data," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 647-663, October.
- Abdulnasser Hatemi-J & Manuchehr Irandoust, 2006. "A bootstrap-corrected causality test: another look at the money–income relationship," Empirical Economics, Springer, vol. 31(1), pages 207-216, March.
- James Bullard, 1999. "Testing long-run monetary neutrality propositions: lessons from the recent research," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 57-77.
- MOON, Hyungsik Roger & PERRON, Benoit., 2002.
"Testing for a Unit Root in Panels with Dynamic Factors,"
Cahiers de recherche
2002-18, Universite de Montreal, Departement de sciences economiques.
- Moon, H.R.Hyungsik Roger & Perron, Benoit, 2004. "Testing for a unit root in panels with dynamic factors," Journal of Econometrics, Elsevier, vol. 122(1), pages 81-126, September.
- Fisher, Mark E & Seater, John J, 1993. "Long-Run Neutrality and Superneutrality in an ARIMA Framework," American Economic Review, American Economic Association, vol. 83(3), pages 402-15, June.
- Patrick J. Coe & James M. Nason, 2004. "Long-run monetary neutrality and long-horizon regressions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 19(3), pages 355-373.
- Peter C. B. Phillips & Donggyu Sul, 2003. "Dynamic panel estimation and homogeneity testing under cross section dependence *," Econometrics Journal, Royal Economic Society, vol. 6(1), pages 217-259, 06.
- Westerlund, Joakim, 2005.
"Testing for Error Correction in Panel Data,"
2005:11, Lund University, Department of Economics.
- repec:fth:osakae:398 is not listed on IDEAS
- Mendizabal, Hugo Rodriguez, 2006. "The Behavior of Money Velocity in High and Low Inflation Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 209-228, February.
- Crowder, William J, 1998. "The Long-Run Link between Money Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 229-43, April.
- Jin Lee, 2012. "Nonparametric Testing for Long-Run Neutrality with Applications to US Money and Output Data," Computational Economics, Society for Computational Economics, vol. 40(2), pages 183-202, August.
- Francesca Iorio & Stefano Fachin, 2014. "Savings and investments in the OECD: a panel cointegration study with a new bootstrap test," Empirical Economics, Springer, vol. 46(4), pages 1271-1300, June.
- Costantini, Mauro & Lupi, Claudio, 2011.
"A Simple Panel-CADF Test for Unit Roots,"
Economics & Statistics Discussion Papers
esdp11062, University of Molise, Dept. EGSeI.
- Francesca Di Iorio & Stefano Fachin, 2011. "A sieve bootstrap range test for poolability in dependent cointegrated panels," DSS Empirical Economics and Econometrics Working Papers Series 2011/2, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.
- Francesca Di Iorio & Stefano Fachin, 2012. "Savings and Investments in the OECD: a panel cointegration study with a new bootstrap test," DSS Empirical Economics and Econometrics Working Papers Series 2012/2, Centre for Empirical Economics and Econometrics, Department of Statistics, "Sapienza" University of Rome.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David Edgerton).
If references are entirely missing, you can add them using this form.