An Evaluation of the Non-Neutrality of Money

PLOS ONE, DOI:10.1371, March 2, 2016

20 Pages Posted: 30 Apr 2016

See all articles by Tito Belchior Silva Moreira

Tito Belchior Silva Moreira

Catholic University of Brasilia

Benjamin M. Tabak

FGV/EPPG

Mario Jorge Cardoso Mendonca

Institute of Applied Economic Research (IPEA) - Directory of Macroeconomic Policy & Studies (DIMAC)

Adolfo Sachsida

Institute for Applied Economic Research (IPEA); Institute of Applied Economic Research (IPEA)

Date Written: April 28, 2016

Abstract

This paper evaluates the effect of a change in the quantity of money on relative prices in the U.S. economy based on quarterly time-series for the period of 1959 to 2013. We also estimate the implication of a change in relative prices on the rate of inflation and macroeconomic variables. The empirical results indicate that the change of money supply not only affects relative prices but also affects the inflation rate and real variables, such as investment, natural rate of unemployment and potential GDP, through the change in relative prices. The relevant finding of our study is that money is not neutral in a non-traditional sense because a change in the money supply disturbs relative prices and, consequently, the allocation of resources in the economy. This finding has serious implications that must be considered in the transmission mechanisms of monetary policy.

Keywords: Relative prices, Monetary policy, Hayek, Von Mises, non-neutrality of money

JEL Classification: B22; B31; E22; E31; E32; E42; E51; E52

Suggested Citation

Moreira, Tito Belchior Silva and Tabak, Benjamin M. and Cardoso Mendonca, Mario Jorge and Sachsida, Adolfo, An Evaluation of the Non-Neutrality of Money (April 28, 2016). PLOS ONE, DOI:10.1371, March 2, 2016, Available at SSRN: https://ssrn.com/abstract=2772148

Tito Belchior Silva Moreira (Contact Author)

Catholic University of Brasilia ( email )

SGAN 916 Modulo B
Brasília, DF
Brazil

Benjamin M. Tabak

FGV/EPPG ( email )

SGAN Av. L2 Norte - Quadra 602 - Módulos A, B e C
Brasília, Rio de Janeiro 70830-051
Brazil

Mario Jorge Cardoso Mendonca

Institute of Applied Economic Research (IPEA) - Directory of Macroeconomic Policy & Studies (DIMAC) ( email )

Av. Presidente Antonio Carlos 51
10 Andar Centro
Rio de Janeiro RJ 20020-010
Brazil

Adolfo Sachsida

Institute for Applied Economic Research (IPEA) ( email )

SBS Ed. BNDES Quadra 1
7o. andar
Brasilia DF 7000-010
Brazil
+55 61 2026-5025 (Phone)
+55 61 315-5448 (Fax)

HOME PAGE: http://www.bdadolfo.blogspot.com

Institute of Applied Economic Research (IPEA) ( email )

Av. Pres. Antonio Carlos , 51 - 17 andar
Rio de Janeiro, RJ, 20020-010
Brazil

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