On the empirics of the non-neutrality of money: Evidence from developed countries

The paper examines the cyclical behavior of money and prices in a sample of developed countries dating from 1951 to 1990. Evident in the data is a tendency toward an average countercyclical behavior of the price level and a weakly procyclical. behavior of nominal monetary aggregates. For money (M1) and money plus quasi-money (M2), correlation coefficients between the real per capita output growth rate and the half lag in the money growth rate are higher on average than correlation coefficients between the real per capita output growth rate and the half lead in the money growth rate, thus indicating that money changes precede output changes. There is at least some evidence that M2 is more strongly associated with real output M1 or high-powered money (M0). As opposed to developed countries, high-inflation Latin American countries exhibit a countercyclical behavior of money.