We examine the long run neutrality of money, (LMN, hereafter), in the Economic and Monetary Community of Central Africa (EMCCA) countries, applying Fisher and Seater (1993) Autoregressive Integrated Moving Average (ARIMA) methodology, using different monetary aggregates, money supply in the strict sense (M1), money supply in the large sense (M2) and domestic credit (credit to private sector) during the period 1978-2008. Tests consistently reject the LMN hypothesis. It is found that monetary aggregates have significant and positive impacts on real Gross Domestic Product (GDP) for all EMCCA countries. The results are robust under various sub-periods and the estimated coefficients are stable under two breakpoints corresponding to the dates of central bank reforms and devaluation of the local currency.
Cite this paper
J. Tony Ekomie, "Testing the Long Run Neutrality of Money in Developing Economies: Evidence from EMCCA," Modern Economy, Vol. 4 No. 1, 2013, pp. 49-55. doi: 10.4236/me.2013.41006.
 M. E. Fisher and J. J. Seater, “Long Run Neutrality and Super Neutrality in an ARIMA Framework,” American Economic Review, Vol. 83, No. 3, 1993, pp. 402-415.
 R. G. King and M. W. Watson, “Testing Long Run Neutrality,” Federal Reserve Bank of Richmond Economic Quarterly, Vol. 83, No. 3, 1997, pp. 69-101.
 A. A. Weber, “Testing Long Run Neutrality: Empirical Evidence for G7 Countries with Special Emphasis on Germany,” Carnegie-Rochester Conference Series on Public Policy, Vol. 41, No. 1, 1994, pp. 67-117.
 N. Serletis and Z. Koustas, “International Evidence on the Neutrality of Money,” Journal of Money, Credit and Banking, Vol. 30, No. 1, 1998, pp. 1-25.
 K. Leong and M. McAleer, “Testing Long Run Neutrality Using Intra-Year Data,” Applied Economics, Vol. 32, No. 4, 2000, pp. 25-37.
 G. L. Shelley and F. H. Wallace, “Long Run Effects of Money on Real Consumption and Investment in the U.S.,” International Journal of Applied Economics, Vol. 3, No. 1, 2006, pp. 71-88.
 S. K. Bae and R. A. Ratti, “Long Run Neutrality, High Inflation and Bank Insolvencies in Argentina and Brazil,” Journal of Monetary Economics, Vol. 46, No. 3, 2000, pp. 581-604.
 S. N. Sulku, “Testing the Long Run Neutrality of Money in a Developing Country: Evidence from Turkey,” Journal of Applied Economics and Business Research, Vol. 1, No. 2, 2011, pp. 65-74.
 S. W. Chen, “Evidence of the Long Run Neutrality of Money: The Case of South Korea and Taiwan,” Economics Bulletin, Vol. 3, No. 2, 2007, pp. 1-18.
 W. K. Newey and K. D. West, “A Simple, Positive Semi-Definite, Heteroskedasticity and Autocorrelation Consistent Covariance Matrix,” Econometrica, Vol. 55, No. 3, 1987, pp. 703-708.
 D. A. Dickey and W. A. Fuller, “Likelihood Ratio Test Statistics for Autoregressive Time Series with a Unit Root,” Econometrica, Vol. 49, No. 1, 1981, pp. 1057-1072.
 P. C. B. Phillips and P. Perron, “Testing for a Unit Root in Time Series Regressions,” Biometrika, Vol. 75, No. , 1998, pp. 335-346.
 D. Kwiatkowski, P. C. B. Phillips, P. Schmidt and Y. Shin, “Testing the Null Hypothesis of Stationarity against the Alternative of a Unit Root: How Sure Are We that Economic Series Have a Unit Root,” Journal of Econometrics, Vol. 54, No. 1, 1992, pp. 159-178.