Testing long-run neutrality using intra-year data

Previous tests of the long-run neutrality hypothesis have generally relied on annual time series data. This paper analyses the long-run neutrality of money in Australia using different sources of intra-year data, which permit s an examination of the effects of seasonality and the robustness of previo us empirical results. A reduced form ARIMA model is used with both quarterl y seasonally unadjusted and adjusted Australian real GDP and nominal money supply to test the neutrality hypothesis. Using two measures of money stock , namely M1 and M3, it is shown that the hypothesis is supported using M1 a s the measure of money supply, while it is rejected using M3. Recent trends and developments in the money and credit markets in Australia provide a po ssible explanation of the sensitivity of the outcome to the measure of mone y stock employed in the analysis.