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Panel cointegration and the neutrality of money

Westerlund, Joakim LU and Costantini, Mauro (2009) 2nd Italian Congress of Econometrics and Empirical Economics In Empirical Economics 36(1). p.1-26
Abstract
Most econometric methods for testing the proposition of long-run monetary neutrality rely on the assumption that money and real output do not cointegrate, a result that is usually supported by the data. This paper argues that these results can be attributed in part to the low power of univariate tests, and that a violation of the noncointegration assumption is likely to result in a nonrejection of the neutrality proposition. To alleviate this problem, two new and more powerful panel cointegration tests are proposed that can be used under quite general conditions. The empirical results obtained from applying these tests to a panel covering ten countries between 1870 and 1986 suggest money and real output are cointegrated, and hence that the... (More)
Most econometric methods for testing the proposition of long-run monetary neutrality rely on the assumption that money and real output do not cointegrate, a result that is usually supported by the data. This paper argues that these results can be attributed in part to the low power of univariate tests, and that a violation of the noncointegration assumption is likely to result in a nonrejection of the neutrality proposition. To alleviate this problem, two new and more powerful panel cointegration tests are proposed that can be used under quite general conditions. The empirical results obtained from applying these tests to a panel covering ten countries between 1870 and 1986 suggest money and real output are cointegrated, and hence that the neutrality proposition must be rejected. (Less)
Please use this url to cite or link to this publication:
author
organization
publishing date
type
Chapter in Book/Report/Conference proceeding
publication status
published
subject
keywords
Monetary neutrality, Panel cointegration testing
in
Empirical Economics
volume
36
issue
1
pages
1 - 26
publisher
Physica Verlag
conference name
2nd Italian Congress of Econometrics and Empirical Economics
external identifiers
  • wos:000262671500001
  • scopus:58949095056
ISSN
0377-7332
DOI
10.1007/s00181-007-0181-y
language
English
LU publication?
yes
id
dc4a629e-e624-4775-be3e-7ef221268028 (old id 1312247)
date added to LUP
2009-03-13 14:54:37
date last changed
2017-10-22 04:25:43
@inproceedings{dc4a629e-e624-4775-be3e-7ef221268028,
  abstract     = {Most econometric methods for testing the proposition of long-run monetary neutrality rely on the assumption that money and real output do not cointegrate, a result that is usually supported by the data. This paper argues that these results can be attributed in part to the low power of univariate tests, and that a violation of the noncointegration assumption is likely to result in a nonrejection of the neutrality proposition. To alleviate this problem, two new and more powerful panel cointegration tests are proposed that can be used under quite general conditions. The empirical results obtained from applying these tests to a panel covering ten countries between 1870 and 1986 suggest money and real output are cointegrated, and hence that the neutrality proposition must be rejected.},
  author       = {Westerlund, Joakim and Costantini, Mauro},
  booktitle    = {Empirical Economics},
  issn         = {0377-7332},
  keyword      = {Monetary neutrality,Panel cointegration testing},
  language     = {eng},
  number       = {1},
  pages        = {1--26},
  publisher    = {Physica Verlag},
  title        = {Panel cointegration and the neutrality of money},
  url          = {http://dx.doi.org/10.1007/s00181-007-0181-y},
  volume       = {36},
  year         = {2009},
}