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On the Neutrality of Money in CEE (EU Member) States: A Panel Cointegration Analysis

Author

Listed:
  • Marinko Škare

    (Juraj Dobrila University of Pula, Faculty of Economics and Tourism “Dr. Mijo Mirković”, Croatia)

  • Manuel Benazić

    (Juraj Dobrila University of Pula, Faculty of Economics and Tourism “Dr. Mijo Mirković”, Croatia)

  • Daniel Tomić

    (Juraj Dobrila University of Pula, Faculty of Economics and Tourism “Dr. Mijo Mirković”, Croatia)

Abstract

The concept of money neutrality is an important pillar of the mainstream economic literature. It implies that autonomous changes in the money supply have no influence on real macroeconomic variables in the long run. The goal of this paper is to test the validity of (long-run) money neutrality proposition in the CEE (EU member) states. The empirical research is based on panel cointegration analysis which utilises annual data on real output and broad (M2) as well as narrow (M1) monetary aggregates over the 1995–2013 period for 11 ex-socialist EU countries. The results suggest that the money neutrality proposition could be rejected in both cases when narrow or broad measure of money supply is applied, meaning that an active monetary policy could and should be used as a stabilisation instrument as well as in stimulating real economic activity.

Suggested Citation

  • Marinko Škare & Manuel Benazić & Daniel Tomić, 2016. "On the Neutrality of Money in CEE (EU Member) States: A Panel Cointegration Analysis," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 66(3), pages 393-418, September.
  • Handle: RePEc:aka:aoecon:v:66:y:2016:i:3:p:393-418
    Note: This work was supported by the Croatian Science Foundation, project number 9481, “Modelling Economic Growth – Advanced Sequencing and Forecasting Algorithm”. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the author(s) and do not necessarily reflect the views of the Croatian Science Foundation.
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    Citations

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    Cited by:

    1. Valentina-Ioana Mera & Monica Ioana Pop Silaghi & Camélia Turcu, 2020. "Economic Sentiments and Money Demand Stability in the CEECs," Open Economies Review, Springer, vol. 31(2), pages 343-369, April.
    2. Aleksandra Fedajev & Danijela Pantović & Isidora Milošević & Tamara Vesić & Aleksandra Jovanović & Magdalena Radulescu & Maria Cristina Stefan, 2023. "Evaluating the Outcomes of Monetary and Fiscal Policies in the EU in Times of Crisis: A PLS-SEM Approach," Sustainability, MDPI, vol. 15(11), pages 1-14, May.

    More about this item

    Keywords

    money non-neutrality; monetary policy; panel cointegration analysis; CEE countries;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General

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