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Revisiting money-output causality from a Bayesian logistic smooth transition VECM perspective

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  • Deborah Gefang

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Abstract

This paper proposes a Baysian approach to explore money-output causality within a logistic smooth transition VECM framework. Our empirical results provide substantial evidence that the postwar US money-output relationship is nonlinear, with regime changes mainly governed by the lagged inflation rates. More importantly, we obtain strong support for long-run non-causality and nonlinear Grangercausality from money to output. Furthermore, our impulse response analysis reveals that a shock to money appears to have negative accumulative impact on real output over the next fifty years, which calls for more caution when using money as a policy instrument.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp08-5.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 08/5.

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Date of creation: Jan 2008
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Handle: RePEc:lec:leecon:08/5

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