Causality between Money and Prices: Evidence from Pakistan
AbstractThe relationship between money and prices has been a debated issue among economic schools of thought particularly between the Monetarists and the Keynesians. The monetarists claim that changes in money stocks cause changes in price levels. In other words, the direction of causation runs from money to prices implying that prices can be controlled through money supply. The keynesians, on the other hand, argue that money is important but is not responsible for changes in price levels. Instead, structural factors play important role suggesting that money supply is not an effective instrument to control price changes. The causal relationship between money and prices has been extensively tested in various countries. For example, Brillembourg and Khan (1979) examined this relationship in USA. Using Sims procedure for the period 1870–1975, they found unidirectional causality running from money to prices. Similar directions of causation are reported by Lee and Li (1983) and Ramachandran and Kamaiah (1992) who investigated the causal relationship in Singapore and India respectively. On the other hand, Aghevli and Khan (1978), while investigating the causal relationship in Brazil, Columbia, the Dominican Republic, and Thailand, found bidirectional causality between money and prices in these countries.
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Bibliographic InfoArticle provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.
Volume (Year): 37 (1998)
Issue (Month): 4 ()
Other versions of this item:
- Husain, Fazal & Mahmood, Tariq, 1998. "Causality between Money and Prices:Evidence from Pakistan," MPRA Paper 2720, University Library of Munich, Germany.
- Husain, Fazal & Mahmood, Tariq, 1998. "Causality Between Money and Prices: Evidence from Pakistan," MPRA Paper 5021, University Library of Munich, Germany.
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
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- Khan, Rana Ejaz Ali & Gill, Abid Rashid, 2007. "Impact of Supply of Money on Food and General Price Indices: A Case of Pakistan," MPRA Paper 16293, University Library of Munich, Germany.
- Hussain, Karrar, 2009. "Causal Ordering Between Inflation and Productivity of Labor and Capital: An Empirical Approach for Pakistan," MPRA Paper 16486, University Library of Munich, Germany.
- Nadia Saleem, 2008. "Measuring Volatility of Inflation in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 13(2), pages 99-128, Jul-Dec.
- Khalid Mushtaq & Abdul Ghafoor & Abedullah & Farhan Ahmad, 2011. "Impact of Monetary and Macroeconomic Factors on Wheat Prices in Pakistan: Implications for Food Security," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(1), pages 95-110, Jan-Jun.
- Sajid Amin Javed & Saud Ahmad Khan & Azad Haider & Farzana Shaheen, 2012. "Inflation and Inflation Uncertainty Nexus: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 348-356.
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