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Money, Income, Prices, and Causality in Pakistan. A Trivariate Analysis

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Author Info

  • Fazal Husain

    (Pakistan Institute of Development Economics (PIDE) Islamabad.)

  • Kalbe Abbas

    (Pakistan Institute of Development Economics (PIDE) Islamabad.)

Abstract

This paper re-examines the causal relationship between money and income and between money and prices in Pakistan using a longer annual data set from 1949–50 to 1998–99 and employing Granger causality and Error Correction Models. We also investigate the causal relationships through trivariate approach. The analyses indicate the long run relationship among money, income, and prices. The analyses further suggest a one way causation from income to money implying that probably real factors rather than money supply has played a major role in increasing Pakistan’s national income. Regarding the causal relationship between money and prices, the analyses suggest a both way causation between them. This implies that monetary expansion increases, and is also increased by, inflation in Pakistan.

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File URL: http://www.pide.org.pk/Research/Report178.pdf
File Function: First Version, 2000
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Bibliographic Info

Paper provided by Pakistan Institute of Development Economics in its series PIDE-Working Papers with number 2000:178.

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Length: 10 pages
Date of creation: 2000
Date of revision:
Handle: RePEc:pid:wpaper:2000:178

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  1. Schwert, G. William, 1987. "Effects of model specification on tests for unit roots in macroeconomic data," Journal of Monetary Economics, Elsevier, vol. 20(1), pages 73-103, July.
  2. James R. Barth & James T. Bennett, 1974. "The Role of Money in the Canadian Economy: An Empirical Test," Canadian Journal of Economics, Canadian Economics Association, vol. 7(2), pages 306-11, May.
  3. Kalbe Abbas, 1991. "Causality Test between Money and Income: A Case Study of Selected Developing Asian Countries (1960-1988)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 30(4), pages 919-929.
  4. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
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Cited by:
  1. 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.

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