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Assessing the Casual Relationship between Euro-Area Money and Price in Time-Varying Environment

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  • Stephen Hall

    ()

  • George Hondroyiannis
  • P.A.V.B. Swamy
  • George S. Tavlas

Abstract

The paper provides new evidence on the causal relationship between money and price for the euro area using quarterly data for the period 1980 to 2006, employing two alternative methods of estimation: the vector error correction (VEC) and time-varying coefficient (TVC) estimation techniques. The latter technique has the advantage over the former technique in that it can deal with possible specification biases and spurious relationships that may have arisen from structural changes. The empirical results from the VEC method reveal a bidirectional causal relationship between money and price. Contrary, the results from the TVC technique suggest that money is acting as an exogenous process determining the price level.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 09/17.

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Date of creation: Sep 2009
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Handle: RePEc:lec:leecon:09/17

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Related research

Keywords: Causality; VEC; Time Varying Coefficient Estimation; Euro Area;

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Cited by:
  1. Fredj Jawadi & Ricardo M. Sousa, 2012. "Money Demand in the euro area, the US and the UK:Assessing the Role of Nonlinearity," NIPE Working Papers 22/2012, NIPE - Universidade do Minho.

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