Testing the Long-Run Neutrality and Superneutrality of Money in Iran

Until late 1970s it was overwhelmingly believed that monetary policy can be used to smooth the fluctuations in business cycles. However, by introducing the concept of rational expectations in macroeconomics the effectivity of monetary policy on real variable has been challenged.Currently, most economists believe that change in monetary aggregates do not affect real variables in long run whereas they do not think so in the short run.The concept of superneutrality of money refers to ineffectiveness of change in growth of money on real variables in long run. The recent progress made in features of time-series have questioned the credibility of the statistical tests to evaluate the Neutrality of money.The purpose of the present paper is to use the Fisher-Seater method to test the neutrality and superneutrality of money applying to the time series data for Iranian economy during 1959-2001. We conclude that money has been neutral in Iran. Also it is found the superneutrality of money is addressable for the Iranian economy during the period under consideration.