Research Database

This article describes three long-run monetary facts derived by examining data for 110 countries over a 30-year period, using three definitions of a country's money supply and two subsamples of countries: (1) Growth rates of the money supply and the general price level are highly correlated for all three money definitions, for the full sample of countries, and for both subsamples. (2) The growth rates of money and real output are not correlated, except for a subsample of countries in the Organisation for Economic Co-operation and Development, where these growth rates are positively correlated. (3) The rate of inflation and the growth rate of real output are essentially uncorrelated.

Using a calibrated growth model, the dynamic effects of NAFTA on Mexican development are studied. Two scenarios are analyzed. In the first, NAFTA is assumed to stimulate inflows of physical capital into Mexico. These inflows reduce the interest rate and raise the wage rates for both skilled and unskilled labor. The skilled wage rises more sharply, however, increasing the skill premium and rapidly accelerating the accumulation of human capital. In the second scenario, NAFTA is assumed to have the effect of fully integrating Mexico with the U.S. and Canada. Integration also reduces the interest rate and raises both wage rates in Mexico, but in this case the skill premium falls and human capital accumulation speeds up only a little. The welfare gains are large in both cases.