Panel cointegration and the neutrality of money

Joakim Westerlund, Mauro Costantini

Research output: Chapter in Book/Report/Conference proceedingPaper in conference proceedingpeer-review

11 Citations (SciVal)


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.
Original languageEnglish
Title of host publicationEmpirical Economics
PublisherPhysica Verlag
Publication statusPublished - 2009
Event2nd Italian Congress of Econometrics and Empirical Economics - Rimini, ITALY
Duration: 2007 Jan 252007 Jan 26

Publication series

ISSN (Print)0377-7332


Conference2nd Italian Congress of Econometrics and Empirical Economics

Subject classification (UKÄ)

  • Economics


  • Monetary neutrality
  • Panel cointegration testing


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