A Review of Literature on Monetary Neutrality - The case of India

Kuek, Tai Hock (2016): A Review of Literature on Monetary Neutrality - The case of India.

Abstract

This paper reviews the literature on monetary neutrality in India from empirical perspectives. Based on monetary neutrality proposition, increment in money supply has no effect on real variables in the long-run. In another words, monetary injection into the economy by the government will not trigger or promote real economic growth as in real gross domestic product (GDP) in the long-run. With monetary neutrality proposition, effectiveness of the current monetary policies in an economy can be examined. For the case of India, mixed results have been obtained on the issue of monetary neutrality.

• Item Type: MPRA Paper
• Language: English
• Keywords: Monetary neutrality, literature review, India
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates

References

Arintoko (2011). Long run money and inflation neutrality test in Indonesia. Bulletin of Monetary, Economics and Banking, 75-100.

Ashra, S., Chattopadhyay, S. & Chaudhuri, K. (2004). Deficit, money and price: the Indian experience. Journal of Policy Modeling, 26, 289-299.

Atesoglu, H. S. & Emerson, J. (2009). Long-run monetary neutrality. Applied Economics, 41, 2025-2036.

Bernanke, B. S. & Mihov, I. (1998). The liquidity effect and long-run neutrality. National Bureau of Economic Research (NBER) Working Paper, No. 6608.

Chen, S. W. (2007). Evidence of the long-run neutrality of money: the case of South Korea and Taiwan. Economic Bulletin, 3(64), 1-18.

Chinaemerem, O. C. & Akujuobi, L. E. (2012). Long-run neutrality controversy in a developing economy: the Nigerian example. Arabian Journal of Business and Management Review (OMAN Chapter), 1(12), 89-106.

Chuku, A. C. (2011). Testing long-run neutrality propositions in a developing economy: the case of Nigeria. Journal of Economic Research, 16, 291-308.

Evans, P. (1996). Growth and the neutrality of money. Empirical Economics, 21, 187-202.

Fisher, M. E. & Seater, J. J. (1993). Long run neutrality and super neutrality in an ARIMA framework. The American Economic Review, 83, 402-415.

Giordani, P. (2001). Stronger evidence of long-run neutrality: a comment on Bernanke and Mihov. Working paper series in Economic and Finance, No. 441.

Habibullah, M. S., Mohamed, A., Puah, C. H., & Baharumshah, A. Z. (2002a). The relevance of monetary aggregates for monetary policy purposes in Malaysia. Borneo Review, 13(1), 1-12.

Habibullah, M. S., Puah, C. H., & Azali, M. (2002b). Testing long-run neutrality of money in a developing economy. Savings and Development, 165-181.

International Monetary Fund. (2014a). India: 2014 Article IV Consultation, IMF Country Report 14/57. Washington: International Monetary Fund.

International Monetary Fund. (2014b). India: Selected Issues, IMF Country Report 14/58. Washington: International Monetary Fund.

King, R. G. & Watson, M. W. (1997). Testing long-run neutrality. Federal Reserve Bank of Richmound Economic Quarterly, 83(3), 69-101.

Lee, J. (2012). Nonparametric testing for long run neutrality with applications to U.S. money and output data. Computational Economics, 40, 183-202.

Leong, C. M., Puah, C. H., & Shazali, A. M. (2010). Testing the effectiveness of monetary policy in Malaysia using alternative monetary aggregation. Margin: The Journal of Applied Economic Research, 4(3), 321-338.

Leong, K. & McAleer, M. (2000). Testing long-run neutrality using intra-year data. Applied Economics, 32, 25-37.

Liew, V. K. S., Baharumshah, A. Z., & Puah, C. H. (2009). Monetary model of exchange rate for Thailand: long-run relationship and monetary restrictions. Global Economic Review, 38(4), 385-395.

Malliaropulos, D. (1995). Testing long-run neutrality of money: evidence from the U.K. Applied Economics Letters, 2, 347-350.

Mishra, P. K., Mishra, U. S. & Mishra, S. K. (2010). Money, price and output: a causality test for India. International Research Journal of Finance and Economics, 53, 26-36.

Moosa, I. A. (1997). Testing the long-run neutrality of money in a developing economy: the case of India. Journal of Development Economics, 53, 139-155.

Puah, C. H. & Jayaraman, T. K. (2007). Macroeconomic activities and stock prices in a South Pacific Island economy. International Journal of Economics and Management, 1(2), 299-244.

Puah, C. H., & Hiew, L. C. (2010). Financial liberalization, weighted monetary aggregates and money demand in Indonesia. Labuan Bulletin of International Business and Finance, 8, 76-93.

Puah, C. H., Habibullah, M. S. & Lim, K. P. (2006a). Testing long-run neutrality of money: evidence from Malaysian stock market. Munich Personal REPEC Archive (MPRA) Paper, No. 37676.

Puah, C. H., Habibullah, M. S., & Liew, V. K. S. (2010). Is money neutral in a stock market? The case of Malaysia. Economics Bulletin, 30, 1852-1861.

Puah, C. H., Habibullah, M. S., & Shazali, A. M. (2008a). On the long-run monetary neutrality: evidence from the SEACEN countries. Journal of Money, Investment and Banking, 2, 50-62.

Puah, C. H., Habibullah, M. S., & Shazali, A. M. (2008b). Some empirical evidence on the quantity theoretic proposition of money in ASEAN-5. Pakistan Journal of Applied Economics,18, 31-47.

Puah, C. H., Habibullah, M. S., Lau, E., & Shazali, A. M. (2006b). Testing long run monetary neutrality in Malaysia: revisiting Divisia money. Journal of International Business and Economics, 6, 110-115.

Puah, C. H., Tang, M. M. J., Shazali, A. M., & Brahmana, R. (2015). Does money matter in Indonesia? Revisiting Divisia money. Journal of International Finance and Economics, 15(2), pp.7-12.

Ramachandra, V. S. (1983). Direction of causality between monetary and real variables in India- an empirical result. Indian Economic Journal, 31, 65–76.

Ramachandra, V. S. (1986). Direction of causality between monetary and real variables in India- an extended result. Indian Economic Journal, 34, 98–102.

Ramachandran, M. (2004). Do broad money, output, and prices stand for a stable relationship in India? Journal of Policy Modeling, 26, 983-1001.

Singh, C., Das, R. &Baig, J. (2015). Money, output and prices in India. Indian Institute of Management Bangalore, Working Paper No. 497.

Sulku, S. N. (2011). Testing the long run neutrality of money in a developing country: evidence from Turkey. Journal of Applied Economics and Business Research (JAEBR), 1(2), 65-74.

Tang, M. M. J, Puah, C. H., & Dayang Affizzah, A. M. (2013). Empirical evidence on the long-run neutrality hypothesis using Divisia money. Journal of Academy of Business and Economics, 13(4), pp.153-158.

Tang, M. M. J., Puah, C. H., Affendy, A. M. & Dayang-Affizzah, A. M. (2015). Forecasting performance of the p-star model: the case of Indonesia. Journal of International Business and Economics, 15(2), 7-12.

Wallace, F. H. (2005). Long run money neutrality: the case of Guatemala. Latin American Journal of Economic Development, 5, 127-138.

Westerlund, J. & Costantini, M. (2009). Panel cointegration and the neutrality of money. Empirical Economics, 36, 1-26.