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Neutrality of Money in Mexico: An Empirical
Evaluation
Carolina Carbajal De Nova
Julio Goicoeche
Abstract
The quantitative theory of money assumes that money itself is neutral with respect
to real output. This provision should hold at least in the long-term. In order to test
this proposition for Mexico, M1 and M2 are used, while GDP stands for output. The
period under analysis covers from the first quarter of 1993 to the second quarter of
2014. With respect to M1, the price elasticity of GDP is positive and inelastic
(0.174) in the long-term. In the short-term, the coefficient is (0.315). Regarding M2,
the elasticity of GDP is inelastic in the long run (0.185) as well as in the short-term
(0.239). While the coefficients have a low value, they are not negligible. As a result,
money neutrality does not seem to hold, suggesting a modest accommodative
monetary policy. Throughout this paper, it has been presupposed that total output
is adroitly represented by the GDP.
Key words:
Money neutrality in Mexico, quantitative theory of money,
accommodative monetary policy.
1
Universidad Autónoma Metropolitana (onleave).
2
Universidad Autónoma Metropolitana.