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Long Run Effects of Money on Real Consumption and Investment in the U.S

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Author Info

  • Gary L. Shelley

    (East Tennesee State University)

  • Frederick H. Wallace

    (Universidad de Quintana Roo)

Abstract

This paper tests for long run effects of money on real expenditures in the U.S. over the 1959-2002 period. Real consumption and investment expenditures, as well as their broadly defined components, are examined. We also test for effects of money on long run reallocations of consumption expenditures among durables, nondurables, and services. The time series characteristics of each variable are rigorously investigated. This is followed by application of the long run neutrality test, introduced by Fisher and Seater (1993), to each real expenditures series. Results support long run neutrality of both M2 and M3 with respect to real expenditures for all examined levels of data aggregation.

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File URL: http://128.118.178.162/eps/mac/papers/0404/0404007.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0404007.

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Length: 29 pages
Date of creation: 06 Apr 2004
Date of revision: 06 Apr 2004
Handle: RePEc:wpa:wuwpma:0404007

Note: Type of Document - pdf; pages: 29
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Web page: http://128.118.178.162

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Keywords: money; neutrality; consumption; investment;

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References

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  1. Gerald Carlino & Robert DeFina, 1997. "The differential regional effects of monetary policy: evidence from the U.S. States," Working Papers 97-12, Federal Reserve Bank of Philadelphia.
  2. Coe, Patrick J. & Nason, James M., 2003. "The long-horizon regression approach to monetary neutrality: how should the evidence be interpreted?," Economics Letters, Elsevier, vol. 78(3), pages 351-356, March.
  3. Whitney K. Newey & Kenneth D. West, 1986. "A Simple, Positive Semi-Definite, Heteroskedasticity and AutocorrelationConsistent Covariance Matrix," NBER Technical Working Papers 0055, National Bureau of Economic Research, Inc.
  4. Claudio Raddatz & Roberto Rigobon, 2003. "Monetary Policy and Sectoral Shocks: Did the FED react properly to the High-Tech Crisis?," NBER Working Papers 9835, National Bureau of Economic Research, Inc.
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  7. Olekalns, Nilss, 1996. "Some further evidence on the long-run neutrality of money," Economics Letters, Elsevier, vol. 50(3), pages 393-398, March.
  8. Newey, W.K. & West, K.D., 1992. "Automatic Lag Selection in Covariance Matrix Estimation," Working papers 9220, Wisconsin Madison - Social Systems.
  9. Maurice Obstfeld & Kenneth Rogoff, 1996. "Exchange Rate Dynamics Redux," NBER Working Papers 4693, National Bureau of Economic Research, Inc.
  10. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
  11. Boschen, John F & Otrok, Christopher M, 1994. "Long-Run Neutrality and Superneutrality in an ARIMA Framework: Comment," American Economic Review, American Economic Association, vol. 84(5), pages 1470-73, December.
  12. 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.
  13. Christina D. Romer & David H. Romer, 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 121-184 National Bureau of Economic Research, Inc.
  14. Garrett, Thomas A., 2003. "Aggregated versus disaggregated data in regression analysis: implications for inference," Economics Letters, Elsevier, vol. 81(1), pages 61-65, October.
  15. Spencer Dale & Andrew Haldane, 1993. "Interest rates and the channels of monetary transmission: some sectoral estimates," Bank of England working papers 18, Bank of England.
  16. 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.
  17. Gary L. Shelley & Frederick H. Wallace, 2004. "Testing for Long Run Neutrality of Money in Mexico," Macroeconomics 0402003, EconWPA.
  18. 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.
  19. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
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