Testing the Long Run Neutrality of Money in Developing Economies: Evidence from EMCCA

We examine the long run neutrality of money, (LMN, hereafter), in the Economic and Monetary Community of Central Africa (EMCCA) countries, applying Fisher and Seater (1993) Autoregressive Integrated Moving Average (ARIMA) methodology, using different monetary aggregates, money supply in the strict sense (M1), money supply in the large sense (M2) and domestic credit (credit to private sector) during the period 1978-2008. Tests consistently reject the LMN hypothesis. It is found that monetary aggregates have significant and positive impacts on real Gross Domestic Product (GDP) for all EMCCA countries. The results are robust under various sub-periods and the estimated coefficients are stable under two breakpoints corresponding to the dates of central bank reforms and devaluation of the local currency.