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Productivity, Inflation, And Investment: An Analysis Of Causality

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Author Info
José Antonio Núñez
José Luis de la Cruz
Abstract

This paper elaborates a Vector Error Correction (VEC) in order to determine the causality between inflation and productivity, and between the productivity and investment in Mexico. A VEC allows a causality analysis among cointegrated variables with the same integration order [Hall and Milne, 1994]. This work incorporates the test of constancy in the cointegration rank developed by Quintos (1997). The results show a consistent and bidirectional causality between inflation and productivity. Furthermore, these results denote that some investment components (mainly machinery and equipment imports, and construction) have a strong link with productivity.

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Paper provided by Econometric Society in its series Econometric Society 2004 Latin American Meetings with number 154.

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Date of creation: 11 Aug 2004
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Handle: RePEc:ecm:latm04:154

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Related research
Keywords: causality; constancy of rank;

Find related papers by JEL classification:
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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  1. Clark, Peter K, 1982. "Inflation and the Productivity Decline," American Economic Review, American Economic Association, vol. 72(2), pages 149-54, May. [Downloadable!] (restricted)
  2. Yash P. Mehra, 1993. "Unit labor costs and the price level," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 35-52. [Downloadable!]
  3. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June. [Downloadable!] (restricted)
  4. Liu, Xiaming & Song, Haiyan & Romilly, Peter, 1997. "An Empirical Investigation of the Causal Relationship between Openness and Economic Growth in China," Applied Economics, Taylor and Francis Journals, vol. 29(12), pages 1679-86, December. [Downloadable!] (restricted)
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  5. Hall, Stephen G & Milne, Alistair, 1994. "The Relevance of P-Star Analysis to UK Monetary Policy," Economic Journal, Royal Economic Society, vol. 104(424), pages 597-604, May. [Downloadable!] (restricted)
  6. Liu, Xiaohui & Burridge, Peter & Sinclair, P J N, 2002. "Relationships between Economic Growth, Foreign Direct Investment and Trade: Evidence from China," Applied Economics, Taylor and Francis Journals, vol. 34(11), pages 1433-40, July. [Downloadable!] (restricted)
  7. Quintos, Carmela E & Phillips, Peter C B, 1993. "Parameter Constancy in Cointegrating Regressions," Empirical Economics, Springer, vol. 18(4), pages 675-706.
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