The monetary neutrality and its implications uponthe real economy

Author:Alexandra Adam - Ioana Moldovan - Simona Hudea
Position:Lecturer Assistant, Academy of Economic Studies, Bucharest - Lecturer Assistant, Academy of Economic Studies, Bucharest - Lecturer Assistant, Faculty of Economic Sciences, 'Nicolae Titulescu' University, Bucharest
Pages:138-148
SUMMARY

The monetary neutrality considers the way the monetary decisions affect the real variables and implicitly the real economy both on short term and long run. Although early study of this problem is rooted in the '70s, the issue is studied also nowadays, as many works aim to test whether the long-term monetary neutrality occurs indeed at any time, in any circumstances and regardless of the area.... (see full summary)

 
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138 Lex ET Scientia. Juridical Series
LESIJ NO. XVII, VOL. 2/2010
THE MONETARY NEUTRALITY AND ITS IMPLICATIONS UPON
THE REAL ECONOMY
Alexandra ADAM*
Ioana MOLDOVAN**
Simona HUDEA***
Abstract
The monetary neutrality considers the way the monetary decisions affect the real variables
and implicitly the real economy both on short term and long run. Although early study of this
problem is rooted in the '70s, the issue is studied also nowadays, as many works aim to test
whether the long-term monetary neutrality occurs indeed at any time, in any circumstances and
regardless of the area. This paper aims to analyse the answer to the following question: How do
monetary changes affect the main macroeconomic variables, such as output, real wages and real
interest rates?
Keywords: money, real interest rate, monetary policy, real wages, real variables
Introduction
In this article we consider particularly the discussion of some key issues regarding money,
the effects on real variables in short term and long run due to its changes. To reflect this interaction
between money and real economy, we considered it necessary to display different ideas acquired
by Keynesians and Monetarists. While the debate of these economists’ opinions pertaining to these
two trends seem to be of the past, from our point of view in order to develop new theories and
ideas is absolutely necessary to study the past.
Moreover, in order to highlight the importance of interaction between money and real
economy we could not neglect monetary neutrality, which is referring to how the monetary
decisions affect real variables (and implicitly the real economy) on short term and long run.
Although early study of this problem is rooted in the '70s, the issue is studied also nowadays, as
many works aim to test whether the long-term monetary neutrality occurs indeed at any time, in
any circumstances and regardless of the area.
This paper aims to analyse the answer to the following question: How do monetary changes
affect the main macroeconomic variables, such as output, real wages and real interest rates?
The answer to the question was obtained by analyzing several reference works on the topic,
one of them being Robert Lucas’ lecture, Nobel Laureate on monetary neutrality.
The need to capture the monetary implications on socio-economic and political space from
nowadays leads us to do, above all, a periplus in the literature, covering the history and evolution
of money because the latter is, rightly so, "the central axis" of the modern society.
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* Lecturer Assistant, Academy of Economic Studies, Bucharest (e-mail: ale_adam2007@yahoo.com).
** Lecturer Assistant, Academy of Economic Studies, Bucharest (e-mail: ioana.moldovan@economie.ase.ro).
*** Lecturer Assistant, Faculty of Economic Sciences, “Nicolae Titulescu” University, Bucharest (e-mail:
caraman_simmy2005@yahoo.com).

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