On The Neutrality Of Inside And Outside Money

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The relationships between nominal inside money and real economic activity and nominal outside money and real economic activity are explored using data on checkable deposits, M2 excluding currency, the monetary base, and real income in the United States from 1900 to 1992. This is done by calculating the long-run elasticities of real output with respect to inside and outside components of the money stock. Small but significant deviations from neutrality are detected for inside money over a range of identifying assumptions. The evidence suggests, however, that the source of non-neutrality is not the one hypothesized by Gurley and Shaw (1960).