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Is long-run monetary neutral? Evidence from Indonesia

Author

Listed:
  • Arintoko
  • Nunik Kadarwati

    (Universitas Jenderal Soedirman
    Universitas Jenderal Soedirman)

Abstract

This paper examines the long-run monetary neutrality in Indonesia, mainly using annual timeseries during 1970-2007. It uses Fisher-Seater methodology to analyze the research problems. Particular attention is given to integration, exogeneity, and cointegration properties of the money stock and real output. Unit-root, causality, and cointegration tests are used to identify these properties. The empirical results provide evidence to reject the long-run neutrality of money (both M1 and M2) with respect to real GDP, showing that it is inconsistent with the classical and neoclassical economics. In particular, government injections of money have long-run positive effect on real output in macroeconomy.

Suggested Citation

  • Arintoko & Nunik Kadarwati, 2009. "Is long-run monetary neutral? Evidence from Indonesia," Economic Journal of Emerging Markets, Universitas Islam Indonesia, vol. 1(3), pages 197-214, April.
    • Handle: RePEc:uii:journl:v:1:y:2009:i:3:p:197-214
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary neutrality; unit root; exogeneity; government injections of money;
    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
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • 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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