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

  • Gary L. Shelley

    (East Tennesee State University)

  • Frederick H. Wallace

    (Universidad de Quintana Roo)

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://econwpa.repec.org/eps/mac/papers/0404/0404007.pdf
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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
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Olekalns, Nilss, 1996. "Some further evidence on the long-run neutrality of money," Economics Letters, Elsevier, vol. 50(3), pages 393-398, March.
  2. Obstfeld, Maurice & Rogoff, Kenneth S., 1995. "Exchange Rate Dynamics Redux," Scholarly Articles 12491026, Harvard University Department of Economics.
  3. Christina D. Romer and David H. Romer., 1989. "Does Monetary Policy Matter? A New Test in the Spirit of Friedman and Schwartz," Economics Working Papers 89-107, University of California at Berkeley.
  4. Christina D. Romer & David H. Romer, 1990. "New Evidence on the Monetary Transmission Mechanism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1), pages 149-214.
  5. 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.
  6. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  7. Gertler, M. & Gilchrist, S., 1993. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," Working Papers 93-02, C.V. Starr Center for Applied Economics, New York University.
  8. 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.
  9. Kenneth D. West & Whitney K. Newey, 1995. "Automatic Lag Selection in Covariance Matrix Estimation," NBER Technical Working Papers 0144, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
  12. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  13. 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.
  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. 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.
  16. Gary L. Shelley & Frederick H. Wallace, 2004. "Testing for Long Run Neutrality of Money in Mexico," Macroeconomics 0402003, EconWPA.
  17. Dale, Spencer & Haldane, Andrew G., 1995. "Interest rates and the channels of monetary transmission: Some sectoral estimates," European Economic Review, Elsevier, vol. 39(9), pages 1611-1626, December.
  18. 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.
  19. 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.
  20. 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.
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