Gary L. Shelley

Inflation, money, and real GDP in Mexico: a causality analysis

The relation between inflation, M1 money, and real GDP in Mexico is examined using annual data from 1944 to 1991. When investigating the relation between changes in inflation and real GDP growth it is found that it is important to separate the changes in inflation into predictable and unpredictable components. Predictable increases in differenced inflation are found to have a significant, negative effect on real GDP growth. Unpredictable increases in differenced inflation are found to have a significant, positive effect on real GDP growth. In contrast, changes in M1 growth fail to Granger-cause real GDP growth even when the changes in money growth are divided into predictable and unpredictable components.

Tests of the money-output relation using disaggregated data

Either anticipated or unanticipated money affects output in fourteen of twenty U.S. manufacturing industries. In most of these instances, however, Akaikes final prediction error criterion indicates that money enters an industrys output equation with lags of three months or less. For just two industries, tobacco manufacturing and textile mill products, are there clear indications that money is not neutral at extended lags. Each of these industries is concentrated in one or two states suggesting that monetary policy may affect output through a regional credit channel.

Structural change in federal spending and deficits: Legislative and cyclical influences

This paper analyzes the behavior of federal expenditures and budget deficits since 1955. It is found that growth in these series is well described by two simple step functions allowing for three discrete increases in the means of the variables. When adjusted for the changes in means, both series are stationary with no significant time trend. It is found that the increases in means are associated with government attempts to implement countercyclical fiscal policy during recessions. Also, the increases in means coincide well with specific legislative acts which increased the budgetary power of individual members of Congress and ended the ability of the president to use impoundment as a substitute for a line-item veto.

A reexamination of Mishkin's neutrality test

Abstract Mishkins 1982 paper is one of the most widely cited papers in empirical macroeconomics. His finding that anticipated money growth is not neutral in the US casts doubt on the policy ineffectiveness proposition. However, recent advances in econometrics suggest that Mishkins model may be misspecified, thus raising questions concerning his findings. Given the influence of Mishkins paper, we examine his model for specification problems and find several. However, we find that Mishkins conclusions concerning money neutrality are robust for a number of alternative specifications and for an extended time period.