Seasonal Cointegration and Long-run Neutrality of Money in the USA

Using the notion of seasonal co-integration and a monetarist model, this paper re-examines the long-run monetary neutrality hypothesis, based on the seasonally unadjusted quarterly data of the US over the period 1959Q1 to 2004Q4. The results indicate that money is cointegrated with price at all possible frequencies while real output is cointegrated with price only at an annual frequency. The cointegration between money and price at the zero frequency, and noncointegration between real output and money at all possible frequencies, suggests that money affects nominal but not real variables in the long-run.