An International Perspective on the Long-Run Relationship Between Money and Income Nozar Hashemzadeh 1

Abstract

The role of money and its impact on nominal and real variables has been the focus of a lively debate for more than two centuries. This paper examines the historical association between the money supply, Ml, and real gross national product (GNP), in selected countries. Using the cointegration methodology, the author finds a tenable longrun equilibrium relationship between the narrowest definition of the money supply, Ml. and real output in the Federal Republic of Germany but little evidence in favor of a comparable relationship for Austria, France, Italy, Japan, South Korea, Switzerland, and the United States. Overall, the results strongly suggest that innovations in the Ml money supply are insufficient for understanding and predicting the behavior of real output in the short-run or the long-run. (E52, C59)