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Three essays on the neutrality of anticipated money growth

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  • Gauger, Jean Ann

Abstract

One well-known proposition from several current macroeconomic and monetary theories is that anticipated money growth is "neutral" with respect to real economic activity. These macro theories typically imply particular response patterns for anticipated money and unanticipated money growth at the disaggregated output level, as well. The hypothesis has previously been examined theoretically and empirically on an aggregate basis, with results from several aggregate tests supportive of neutrality. However, attention has not been directed to impacts at disaggregated levels;This research examines the neutrality of anticipated money growth, taking the disaggregated focus. The research is presented in three separate essays. The first essay examines impacts of anticipated and unanticipated money growth on real output of twelve U.S. manufacturing industries. The research indicates that, contrary to the theoretical hypothesis and previous aggregate tests' results, real impacts exist from anticipated money at the disaggregate level;Essay Two examines more specifically the issue of aggregate versus disaggregated testing of neutrality. The research tests neutrality on both aggregate real GNP and the GNP subcomponents, controlling for differences in econometric procedures. The examination indicates that aggregate level data does produce an appearance of support for the neutrality hypothesis, despite the real anticipated money impacts found to exist at the disaggregated level;The final essay focuses on anticipated money impacts in a theoretical model where real output is a function of the output price and the cost of a purchased input, and one of the nominal values is temporarily rigid. The analysis indicates that real anticipated money impacts exist if either price or cost is rigid, and the impacts are of opposite signs. A final example in Essay Three illustrates how offsetting anticipated money impacts across production at the disaggregated level potentially explain the contradiction found in aggregate versus disaggregated empirical tests of neutrality;The three papers here share the common conclusion: examinations of anticipated money neutrality cannot be confined to the aggregated level. Disaggregated research is also needed.

Suggested Citation

  • Gauger, Jean Ann, 1984. "Three essays on the neutrality of anticipated money growth," ISU General Staff Papers 198401010800008758, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:198401010800008758
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    References listed on IDEAS

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