Monetary impacts on prices in the short and long run: some evidence from New Zealand

This paper presents support for long-run monetary neutrality based on evidence that individual time series for money, manufacturing prices, and agricultural prices are nonstationary but cointegrated, with a stationary proportional long-run relationship among their levels. Dynamic simulations from a vector error-correction model with this restriction imposed show that monetary shocks shift relative prices in favor of agriculture in the short run and permanently raise nominal prices. Manufacturing price shocks have similar long-run effects but initially place agriculture in a cost-price squeeze, while agricultural price shocks are transitory and have little impact on the other series.