Versión de HTML Básico
Nevertheless, the quantity theory continues to be a source of widespread
controversy (Laidler, 1991).
The structure of this paper is as follows: a review of the quantity theory of money is
made at the outset. Afterwards, a model is established in order to test the neutrality
of money by means of two equations. The first equation estimates whether real
GDP is neutral with respect to M1. The second equation estimates neutrality once
again with GDP, but with respect to M2. The results of the model are evaluated in
the light of what the quantity theory scheme prescribes, before conclusions are
outlined.
2. Long-run neutrality; short-run neutrality
There is a general agreement among subscribers to money neutrality. In the long-
term, money supply does not affect real variables
However a distinction is made
regarding the short-term, where money need not be neutral. Hume himself shares
this point of view, as well as the New Keynesians.
Therefore, this persuasion
concedes that money could be non-neutral in the short-term.
3
According with Coorey, Mecagni & Offerdal (1998) “Classical theory suggests
that while in the long run inflation is determined by nominal money growth, relative
price adjustment reflects real factors and would not affect the increase in overall
prices.”
4
According to Mankiw (1992) “Old classical economists, such as David Hume,
asserted that money was neutral in the long run but not in the short run. This is
exactly the position held by new Keynesians. By contrast, new classical
economists claim that money is neutral even in the short run. In advocating this
position, they take the classical dichotomy more seriously than did the classical
economists themselves.”