Is There Any Difference to Use Various Definition of Money in Analyzing Money Neutrality?

Document Type : Original Research

Authors
Bahram Sahabi 1
Alireza Keikha 2
Esmaeil Jafarimehr 3
1 Associate Professor, Faculty of Management and Economics, Tarbiat Modares University, Tehran, Iran
2 PhD Candidate, Faculty of Management and Economics, Tarbiat Modares University, and Lecturer in University of Zabol, Sistan and Balouchestan, Iran
3 PhD Candidate, Faculty of Economics, Tarbiat Modares University, Tehran, Iran
Abstract
During past years, economists have been endeavoring to determine both relationship and causality direction between real macroeconomic and nominal economic variables. In this regard, many studies have been carried out on the relation between money and inflation, resulting in the introduction of the notion of money neutrality which implies that permanent change of money supply just affects the nominal variables and has no lasting and real effect on production and employment. Furthermore, even when constant changes of money growth have no real impact whatsoever (except on real monetary equilibriums); money is stated to be super neutral in the long run. Although the majority of economists (with disparate schools of thought) concur with long-term money neutrality, there are still different opinions on the short-term and middle-term neutrality of the money. In following some major of them are presented. This paper investigates the existence of money neutrality in the Iranian economy applying Fisher and Seater approach during 1973 and 2014. The time series analysis, ARIMA model, is used to examine the problem and we consider various monetary aggregates, M1 and M2. Results show that we cannot reject the hypothesis test of money neutrality in Iran. Because all variables are non-stationary and integrated of order one I (1) we can only test the money neutrality. So it is strongly verified that money is neutral and it does not have any significant effects on real non-oil GDP in Iran. Also it was shown that the results are not sensitive to different aggregate money supply.

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The International Journal of Humanities
Volume 26, Issue 3
Summer 2019
Pages 22-30