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Does Money Lead Prices in Malaysia? A Bivariate and Trivariate Analysis

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  • Mohd Fahmi Ghazali
  • Mori Kogid
  • Hanudin Amin

Abstract

: This paper reinvestigates the relationship between money supply and prices in Malaysia. The sample includes monthly data of money supply (M1, M2 and M3), consumer price index (CPI) and industrial production index (IPI) from January 1974 to April 2007. Both Johansen cointegration and autoregressive distributed lag (ARDL) bounds testing method suggest that there is a long-run equilibrium relationship between money supply and prices in Malaysia. Toda-Yamamoto causality test results reveal that there is a unidirectional causality running from money supply to CPI, and this supports the quantity theorist's view, even when domestic real activity variable is included as a control variable.

Suggested Citation

  • Mohd Fahmi Ghazali & Mori Kogid & Hanudin Amin, 2011. "Does Money Lead Prices in Malaysia? A Bivariate and Trivariate Analysis," The IUP Journal of Applied Economics, IUP Publications, vol. 0(1), pages 71-82, January.
    • Handle: RePEc:icf:icfjae:v:10:y:2011:i:1:p:71-82
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