In this paper we analyse the long-run proportionality and neutrality propos
itions between inflation and money growth and between exchange rate changes
and money growth. Using a sample of 100 countries over a thirty-year perio
d we find that the evidence in favour of these propositions is weak for the
low inflation countries and very strong for the high inflation Countries.
We propose an explanation based on productivity shocks and transaction cost
s. Copyright (C) 2001 John Wiley & Sons, Ltd.