The Long-Run Superneutrality of Money Revised: the Extended European Evidence

Issue: 3/2016

Martin Hodula

VŠB-Technical University of Ostrava, Economic Faculty, Department of Economics, Sokolská třída 33, 701 21 Ostrava, Czech Republic, e-mail: martin.hodula@vsb.cz

Oleg Deev

Masaryk University, Faculty of Economics and Administration, Department of Finance, Lipová 41a, 602 00 Brno, Czech Republic, e-mail: oleg@mail.muni.cz

This article investigates the validity of the money superneutrality concept for the large panel of European economies. While focusing exclusively on endogenous growth theories including the Mundell-Tobin effect, we examine the long-run response of real output to a permanent inflation shock in every studied country using a structural vector autoregressive framework. For the majority of countries in our sample, the long-run superneutrality concept is confirmed since the original increase/decrease in output growth fades in time. We also test the additional hypothesis of whether the group of countries with smaller in-sample inflation mean forms the exception to the long-run money superneutrality. As the result, modern economies might be better described from the viewpoint of Sidrauski.

Pages: 
187-203
DOI: 10.1515/revecp-2016-0012
JEL: E50, C32
Keywords: SVAR, superneutrality, endogenous growth theories