Neutrality Of Money Research Articles

Revisiting the Money Supply and Real Output Nexus in Nigeria: Test of Neutrality Proposition?

This study investigates the money supply-real output nexus while examining the neutrality hypothesis for Nigeria utilizing data from 1980 to 2022. The study used the autoregressive distributed lag (ARDL) technique and the discrete threshold regression model. The finding supports the money neutrality hypothesis in the long run but non-neutrality in the short run. In order words, money supply does not have a significant influence on real output growth in the long-term but does in the short-term. Inflation was found to have a reducing consequence on real output growth in the long and short term, while real effective exchange rates have a reducing effect on real output in the long run but advance in the short run. Structural breaks before the year 2000 have a significant influence on GDP growth in both the long and short run. Sequel to these outcomes, the study suggests an optimum fiscal policy mix with modest monetary policy should be adopted in Nigeria with more attention on the fiscal responsibility of the government to influence changes in real variables. More so, the CBN should urgently begin to announce specific inflation targets for the country since it has a reducing impact on GDP growth in the long run while ensuring the attainment of a more realistic exchange rate for the naira by increasing domestic production for export in the long run.

Econometric Analysis of South Africa’s Fiscal and Monetary Policy Effects on Economic Growth from 1980 to 2022

This study examined South Africa’s economic growth rate from 1980 to 2022 through an econometric analysis of fiscal and monetary policies. The study sought to investigate the relationships between the economy’s growth rate and various fiscal and monetary policy variables, taking into account different economic approaches such as Keynesian, monetarist, and Wagner’s perspectives. The methodology used consisted of data preparation, multiple unit root tests, Autoregressive Distributed Lag (ARDL) cointegration analysis, diagnostic tests, and pairwise Granger causality analysis. The empirical analysis found a long-term cointegration among the economic growth rate, government debt, expenditure, and revenue in fiscal policy, though government debt and expenditure were not statistically significant. Contrary to economic theory, increased government revenue had a negative correlation with economic growth. There was no long-term relationship found between the economic growth rate and monetary policy variables such as the official exchange rate, inflation rate, real interest rates, and M3 money supply. Pairwise Granger causality tests revealed a one-way relationship between government spending and economic growth, providing support to the Keynesian approach to fiscal policy. This study also discovered evidence that economic growth Granger-causes inflation, implying that economic growth may have predictive power for inflation, consistent with the demand-pull inflation hypothesis. However, no direct predictive relationships were found between the selected monetary policy variables and economic growth, supporting the long-run theory of monetary neutrality. This study suggests evaluating spending, managing inflation, implementing reforms, closing infrastructure gaps, encouraging investment, and ensuring fiscal sustainability.

Information and entropy in the labor market: Frictional and involuntary unemployment and the neutrality of money

AbstractWe re‐examine the concept of involuntary and frictional unemployment and the neutrality of money in a statistical equilibrium model of the labor market in which boundedly rational workers' and employers' interactions have a non‐zero impact on wages. From this perspective both the degree of involuntary unemployment and the neutrality of money depend on the adjustment of both expectations of the average level of wages and prices and the further adjustment of anticipations of the scale of fluctuations in prices and wage offers. Shocks to the economy can produce new long‐run equilibrium levels of unemployment and short‐run increases in involuntary unemployment arising from unevenness in the adjustment of expectations.

КЕЙНСІАНСЬКА КРИТИКА НЕЗАЛЕЖНОСТІ ЦЕНТРАЛЬНИХ БАНКІВ

The article is aimed at analyzing the arguments of Keynesianism representatives against the modern paradigm of central banks independence. According to the result of the study, the modern paradigm of independence of central banks is the result of the adoption of a framework for monetary policy in the form of inflation targeting and represents a certain set of indicators of legal and actual protection against political interference in monetary policy. The Keynesian approach to monetary policy is based on an understanding of the principles of the money market, where there is only a natural interest rate and the role of the central bank is usually offset by this. The natural interest rate is defined as the equilibrium rate of the economy with flexible prices and reflects the potential in the dichotomy of “consumption-investment”. In turn, the central bank's rate, which is usually not the same as the natural one, determines the monetary institution's policy of limiting or stimulating economic growth through control of inflation. The central bank is given the role of an auxiliary tool for ensuring economic equilibrium along with fiscal policy or a discretionary body, which adapts to short-term decisions aimed at reducing unemployment. According to Keynesianism in the long term, there is a tendency to neutrality of money and the central bank can only influence demand in the short term. From this position, the implementation of an activist independent monetary policy negatively affects the economic development due to the uneven impact of interest rates on various sectors of the economy; the inability of central banks to “fine-tune” the economy and the inefficiency of interest rates as a tool of monetary policy by incorporating it into the expectations of economic entities. Based on this, the author determined that the role of central banks, according to Keynesian tradition, varies from an auxiliary tool for ensuring economic growth (Phillips curve) to their compliance with systematic, objective rules for limited purposes (price stability and proper functioning of the financial system).

Macroeconomic conditions of Russia’s transition to high growth rates: China’s experience

Taking China’s economy as an example, some macroeconomic characteristics of the new economic world order, which ensure GDP growth rate ahead of the US, acceleration of innovation activity and growing influence on the structure of global finances are considered. Attention is drawn to the little-studied effect generated by the difference in financing fixed capital investment: while in China the direct use of budgetary resources for that purpose plays a major role, in the United States the indirect use of similar resources dominates. As a result, there is a lag effect, which allows China (given equal rates of the issue of money) generate a higher growth rate and lower inflation. It is shown that in Russia in 2023—2025 no changes towards China’s macroeconomic characteristics are expected. One reason lies in selective attitude of monetary authorities to the economic theory. First, the hypothesis of the neutrality of money in the long term still prevails. With the help of the shifting mode of reproduction model it is shown that this hypothesis is incorrect: in the long run, money can be both neutral and non-neutral, what matters is how a single cash flow is distributed between investment activities and the production and consumption of non-productive goods. Therefore, the possibility of switching to a policy of monetary stimulation of economic growth is ignored. Second, the macroeconomic theory of managing the transitional processes arising from a sharp acceleration in the rate of GDP is insufficiently developed. Calculations of nonstationary trajectories of GDP rates and inflation have been made, as well as ways to minimize the duration of the transition process and to mitigate inflationary fluctuations have been developed. This largely removes the problem of uncertainty in the transition process, and also makes it possible to control it. As a result, it is possible to transit to accelerated economic growth in Russia.

Econometric Insights into South Asia's Monetary, Output, and Price Dynamics: A Simultaneous Equation Modeling Approach

This study focuses on investigating the simultaneous relationship among money supply, inflation, and output of emerging South Asian countries. Data from seven countries in the South Asian region, spanning from 2000 to 2022, is collected for the analysis. Three variables are considered endogenous: Money Supply, Output, and Inflation. Following the fulfillment of assumptions, we employed the Panel Two-Stage Least Squares (Panel 2SLS) method to examine the relationship between money, output, and prices. The results indicated a significant bidirectional relationship between output and money supply, meaning that a higher money supply is associated with increased output and vice versa. Additionally, a unidirectional empirical relationship is observed between inflation and money supply. As the money supply does impact the output, so neutrality of money does not hold. The study recommends South Asian countries establish a policy framework that cautiously adjusts the money supply, balancing the need to prevent excessive inflation or deflation to maintain sufficient liquidity to support optimal economic output.

Introduction to the Mini-Symposium on Lucas’s 1972 ‘Expectations and the Neutrality of Money’ in Historical Perspective

ABSTRACT This is the general introduction to a mini-symposium on Lucas’ (1972) ‘Expectations and the neutrality of money’ in historical perspective. Upon discussing some of the main features of Lucas’ seminal and controversial article, this introduction sums up the main points of the four papers contributed to the mini-symposium.

Application of Dsge Models for the Analysis of Latvian Economic Processes

Nowadays DSGE models are the mainstream of macroeconomic theory. DSGE stands for dynamic, stochastic, general equilibrium and the main purpose of these models is to perform the analysis of business cycle fluctuations and economic policy. The main advantage of DSGE models is related to their theoretical foundations – the dynamics of economic processes is described as interaction of rational optimizing agents, which react to "exogenous stochastic disturbances" (shocks). These advantage of DSGE models helps to analyse both economic processes on the aggregated level and individual markets under the circumstances of uncertainty. Historically, DSGE models have gone through several stages of development. The origins of DSGE models are related to Lucas critique – a series of papers, which presented a new approach of macroeconomic processes analysis. This approach was rather controversial with Keynesian theory. In the terms of R. Lucas, macroeconomic models must be based on microfoundations and consider expected variables, because the consideration of expectations in macroeconomic models best describes "the real economic situation" and makes these models suitable for economic policy development and analysis. The first DSGE models were basically RBC (Real Business Cycle) models, but their main drawback was assumption of neutrality of money, which made them not suitable for monetary policy analysis. Later DSGE models correct this drawback – contemporary DSGE models are used for various purposes, for instance, fiscal and monetary policy analysis. Keywords: macroeconomic modelling, DSGE, Latvian economy

Irrelevant Threats Linger and Affect Behavior in High Anxiety.

Threat-related information attracts attention and disrupts ongoing behavior, and particularly so for more anxious individuals. Yet, it is unknown how and to what extent threat-related information leave lingering influences on behavior (e.g., by impeding ongoing learning processes). Here, human male and female participants (N = 47) performed probabilistic reinforcement learning tasks where irrelevant distracting faces (neutral, happy, or fearful) were presented together with relevant monetary feedback. Behavioral modeling was combined with fMRI data (N = 27) to explore the neurocomputational bases of learning relevant and irrelevant information. In two separate studies, individuals with high trait anxiety showed increased avoidance of objects previously paired with the combination of neutral monetary feedback and fearful faces (but not neutral or happy faces). Behavioral modeling revealed that high anxiety increased the integration of fearful faces during feedback learning, and fMRI results (regarded as provisional, because of a relatively small sample size) further showed that variance in the prediction error signal, uniquely accounted for by fearful faces, correlated more strongly with activity in the right DLPFC for more anxious individuals. Behavioral and neuronal dissociations indicated that the threat-related distractors did not simply disrupt learning processes. By showing that irrelevant threats exert long-lasting influences on behavior, our results extend previous research that separately showed that anxiety increases learning from aversive feedbacks and distractibility by threat-related information. Our behavioral results, combined with the proposed neurocomputational mechanism, may help explain how increased exposure to irrelevant affective information contributes to the acquisition of maladaptive behaviors in more anxious individuals.SIGNIFICANCE STATEMENT In modern-day society, people are increasingly exposed to various types of irrelevant information (e.g., intruding social media announcements). Yet, the neurocomputational mechanisms influenced by irrelevant information during learning, and their interactions with increasingly distracted personality types are largely unknown. Using a reinforcement learning task, where relevant feedback is presented together with irrelevant distractors (emotional faces), we reveal an interaction between irrelevant threat-related information (fearful faces) and interindividual anxiety levels. fMRI shows provisional evidence for an interaction between anxiety levels and the coupling between activity in the DLPFC and learning signals specifically elicited by fearful faces. Our study reveals how irrelevant threat-related information may become entrenched in the anxious psyche and contribute to long-lasting abnormal behaviors.

Monetary non-neutrality and stabilisation policies 50 years after Lucas’s “expectations” paper: a roundtable discussion

Half a century has passed since Robert Lucas got his paper on expectations and the neutrality of money published in the Journal of Economic Theory. That article is widely considered as pathbreaking, starting a movement that changed the professional standards of doing macroeconomics. It arguably also affected the perception, if not the conduct of monetary policy and other stabilisation policies. This roundtable discussion collects comments from a panel of experts in a combination of prominent macroeconomists who have gathered ample experience of work in central banks and other authorities, and historians of economic thought.

Constitutional vulnerability: challenges for feminist monetary re-design in post-COVID-19 political economies

Innovations in monetary design continue to develop alongside insights from heterodox schools of thought, notably ecological economics. Feminist approaches, however, have lacked some critical purchase on the issue, guided by a feminist economics tradition which reflects certain ideas about value from neoliberal economic orthodoxy – including on the neutrality of money. This article situates discussion of the principles of money in the context of COVID-19, interpreting a paradox of hope for monetary design as the need to close an ‘epistemological gap’ between money and either the value of speech or the materiality of bodies. Using a post-structural analysis of the governing tendencies of ‘fiat money’, the article demonstrates possibilities and risks for feminist interventions in monetary re-design. The conclusions offer a biopolitical interpretation of Christine Desan’s influential ‘constitutional approach’ to money as a form of vulnerability for citizens, and the need for feminist political economy to uphold a referential gap in money’s design, looking to innovations beyond the state.

Lucas and Friedman: The Challenges of Rational Expectations-Based Monetary Cycles for Adaptive Expectations-Based Monetary Long Trends

ABSTRACT The paper argues that Lucas (1972. ‘Expectations and the Neutrality of Money.’ Journal of Economic Theory 4 (2): 103–124) played a significant role in changing Friedman’s theoretical propositions of the 1970s, and that his restatement of Friedman’s (1968b. Dollars and Deficits. Inflation, Monetary Policy and the Balance of Payments. Englewood Cliffs: Prentice-Hall International) address on monetarism helped Friedman refine his argument, regarding both theory and policy-making, in a consistent manner. First, the adoption of the rational expectations hypothesis eventually led to a confrontation with Friedman, whose own approach to probability, based on subjective uncertainty, originated in his early joint work with Savage. Second, Lucas’ modelling of the aggregate supply function undermined Friedman’s earlier approach to the interrelationships between prices and quantities, but also helped remind Friedman of his Marshallian lineage. Lastly, Lucas’s monetary cycle theory, based on an extraction signal problem that was quickly criticized and abandoned, compelled Friedman to give a firmer theoretical foundation to his monetary policy rule based on a constant rate of growth in money supply, thanks to his earlier approach of subjective uncertainty and personal probability.

Two Open Questions on Lucas’s Research Program in the Early 1970s

ABSTRACT The article deals with the misperceptions research program that Lucas enunciated in his article ‘Expectations and the Neutrality of Money’ in 1972. It addresses two main questions about Lucas’s research agenda in the early 1970s from both historical and theoretical perspectives: first, Lucas’s claim to root his research program in neo-Walrasian general equilibrium foundations; second, the way in which Lucas avoids dealing with the difficult issue of money in general equilibrium models. The article discusses the consistency of Lucas’s claims of building macroeconomic theory on general equilibrium foundations in the light of open problems in neo-Walrasian general equilibrium theory and the ‘Hahn question’. In the conclusion, the article proposes a reflection on the importance of conceptual screening in the evaluation of research programs in macroeconomics.

Implications of Endogenous Money Growth for Some Tests of Superneutrality and the Fisher Effect

Superneutrality of money and the Fisher Effect are well-known theoretical propositions. Empirical tests of long-run versions of these hypotheses have sometimes been done by estimating how a variable responds to a permanent shock to inflation. Substituting inflation for money growth in a test for superneutrality is motivated by the widely-accepted Monetarist precept that “inflation is everywhere and always a monetary phenomenon.” Use of permanent shocks to inflation and money growth for testing such hypotheses has declined, in part because permanent movements in these variables have an endogenous component and so estimates are biased. But the sign of the bias may be determined using credible qualitative assumptions about the effects of structural shocks on variables. These results are used to re-examine multi-country findings from two di˙erent structural VAR models that estimate the effects of permanent inflation shocks. One finding is rejection of superneutrality for output in favor of a long-run positive output effect from permanently higher money growth. The second is rejection of the Fisher Effect in favor of nominal rates moving less than one-for-one in the long run with inflation. Both rejections are shown to be robust to endogenous money growth bias under a wide range of plausible structural assumptions. These results for real interest rates and output provide evidence in support of structural models which give rise to a Mundell-Tobin effect.

Some Long-Run Correlations of Inflation in Developed Countries

Using 100+ years of data from 18 developed countries, we use a frequency domain technique to compute “long-run” correlations between inflation on the one hand and money growth and nominal interest rates on the other. The estimated long-run correlations are almost always positive. Their magnitude is relatively substantial for money growth, more modest for interest rates. We conclude that some traditional propositions about monetary neutrality are broadly consistent with the data.

MONEY SUPPLY, INFLATION AND ECONOMIC GROWTH IN BOSNIA AND HERZEGOVINA: AN EMPIRICAL ANALYSIS

The analysis of monetary variables and their impact on the economic growth rate has always been in the focus of economic research. In the broadest sense, economic theory distinguishes two basic views defined by the views of monetarists and Keynesians. Although the basic difference is reflected in the determination of price rigidity and money neutrality, specifics of modern economic systems shift the focus towards the positive influence of monetary on real variables. The aim of our research is to identify and quantify the impact of monetary variables on economic growth in Bosnia and Herzegovina. The research was conducted using data from the period 2000-2020. The paper starts with the hypothesis that money supply and inflation ultimately have a positive impact on the real economic growth in BiH. The money supply M2 and the annual inflation rate are taken as explanatory (monetary) variables in the research, while real growth is a dependent variable. The long-term relationship between monetary variables and real growth rates was tested, taking into account the specificity of the BiH monetary arrangement established in the form of a currency board. In order to prove the hypothesis, we applied econometric techniques such as VEC model, cointegration analysis, innovation analysis based on the impulse-responsive function, decomposition variance as well as a causality test. The research results showed the connection between the money supply and the inflation rate with the economic growth in BiH, the relation being positive and statistically significant in the long run. With this, we confirmed the initial hypothesis of the work.

Hume on the Monetary Fallacy of Monotonic Counterfactuals

I focus on the commonly shared view that Hume’s monetary theory is inconsistent. I review several attempts to solve the alleged inconsistency in Hume’s monetary theory, including the consensus interpretation according to which Hume was committed to the neutrality of money only in the long run, while he conceded that money can be non-neutral in the short run. Then, building on a monetary version of the logical fallacy of monotonic counterfactuals in the essay Of the Balance of Trade, I argue for the consistency of Hume’s theory of money by ascribing to Hume a distinction between money as collectively neutral and distributively non-neutral.

Lucas’ expectational equilibrium, price rigidity, and descriptive realism

ABSTRACT Robert Lucas' ([1972b] 1981a) article on the neutrality of money represented the first effective challenge to Samuelson’s neoclassical synthesis methodological separation between static microeconomic optimisation and macroeconomic dynamics. Lucas rejected disequilibrium price dynamics, as expressed by the Walrasian tâtonnement and auctioneer mechanisms. Lucas’ new treatment of equilibrium as an expectational concept, determined by the rational behaviour of information processing agents, was not restricted to market clearing competitive economies. Lucas’ effort to compare alternative rational expectations models of price stickiness (including his 1972 original formulation) led him to stress the notion of descriptive realism of the models’ main assumptions, which played an important role in his original discussion of model robustness.

The Empirical Research on Monetary Neutrality in China

Monetary Neutrality has been a hot topic of economics, which has an important effect on the establishment and implementation of the monetary policy of one country. Based on the related data from 1981 to 2004, this paper makes an empirical analysis of monetary neutrality in China with the method of Unit-Root Test, Co-integration Test and Granger's Cause-and-effect Test, which indicates that the money is neutral and the money supply is endogenetic.

ЕФЕКТИВНІСТЬ ФУНКЦІОНУВАННЯ ГРОШОВОГО КАНАЛУ МОНЕТАРНОЇ ТРАНСМІСІЇ В УКРАЇНІ

The article provides a comprehensive analysis of the monetary channel of monetary transmission in Ukraine in 2005–2021, identifies tools and mechanisms for its use, and describes the specifics of functioning in the monetary regulation of the economy in political and economic instability. It is proved that in the conditions of Ukraine the monetary channel of monetary transmis-sion plays an important role in the system of monetary regulation of the economy, and the main purpose of its use is to ensure optimal proportions between supply and demand of money and balanced money market development. It is determined that in 2005–2021 the efficiency of the monetary channel of monetary transmission in Ukraine was low, and its operation was subject to the use of mainly interest, currency and credit channels. It is substantiated that the main reasons for the inefficiency of the monetary channel of monetary transmission were the central bank's underestimation of the role of the monetary channel in the monetary regulation of the economy, unbalanced structure and dynamics of the monetary base and monetary aggregates, and low money multiplication rate. It is proved that the dynamics of monetary aggregate M3 had the most significant impact on the growth rate of real GDP in the analyzed period. It was found that the influence of the dynamics of monetary aggregates on curb-ing inflation was insignificant, which corresponds to the provisions of the theory of "money neutrality". Based on the analysis of the practice of using the monetary channel of monetary transmission, three cycles of monetary and macroeconomic dynamics are distinguished: 1) 2005–2009; 2) 2010–2015; 3) 2016–2021, their features and the nature of the relationship between the studied indicators are determined. It is proved that in the conditions of complicated economic development it is necessary to change the approaches to the mechanisms of monetary transmission monetary channel by strengthening its role in forming the main monetary proportions and increasing the coordination of monetary and fiscal policy, in particular, in issuing and trading government debt securities, public debt service and state budget deficit. It is argued that in the medium term the growth rate of the monetary base and monetary aggregates should be as consistent as possible with the dynamics of real GDP and the ability to curb inflation, and the rate of return on domestic government debt should not exceed the base interest rate. Priority measures to improve the efficiency of the monetary transmission monetary channel in Ukraine should be: strengthening the stability of the banking system, balancing the supply and demand of money, improving methods of forming the volume and structure of monetary base and monetary aggregates, and improving monetary and fiscal policy coordination. implementation by the central bank of a balanced monetary policy adequate to real economic conditions.