Testing for Neutrality and Super-neutrality of Money: Evidence from Iran’s Agricultural Sector

This study uses the Fisher–Seater (FS) approach to test long-run neutrality (LRN) and long-run super-neutrality of money (LRSN) in Iran. The data used is quarterly real and nominal GDP, real and nominal agricultural product, and M2 for 1988–2008. The data was collected from the Central Bank of Iran. To formulate LRN and LRSN and to extract the restrictions required by them, the study first introduces the long-run derivative. FS assumes a log-linear bivariate system of the stationary and invertible ARIMA models. To use the FS approach, the integration order of variables should be known. Hence, the study uses different unit root tests (DF-GLS, ADF, KPSS, and HEGY). In addition, it also does the Zivot-Andrews test, which includes a structural break in the data. The results show that M2 is neutral with respect to real GDP and real agricultural output. However, for nominal agricultural output, neutrality of M2 is rejected. The neutrality results for the nominal GDP vary depending on the unit root test’s results. The findings indicate that the super-neutrality of M2 is confirmed with respect to real GDP.