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Testing for nonlinear causation between capital inflows and domestic prices

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  • Rashid, Abdul

Abstract

The nonlinear cointegration and Granger causality tests are applied in a bi-variate framework to investigate the effects of capital inflows, monetary expansion and interest rates on domestic price levels. The key message of the analysis is that there is a significant inflationary impact of capital inflows, money supply-to-GDP ratio and domestic debt, in particular during period of large capital inflows from 2001 to 2008. Whereas, interest rate and exchange rate do not have any significant nonlinear causal links with domestic price levels during the examined periods.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26082.

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Date of creation: 14 Jun 2010
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Handle: RePEc:pra:mprapa:26082

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Keywords: Capital Inflows; Inflationary Pressures; Monetary Expansion; Nonlinear Dynamics;

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  1. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  2. Kyrtsou, Catherine & Labys, Walter C., 2006. "Evidence for chaotic dependence between US inflation and commodity prices," Journal of Macroeconomics, Elsevier, vol. 28(1), pages 256-266, March.
  3. Rangan Gupta, 2005. "Financial Liberalization and Inflationary Dynamics: An Open Economy Analysis," Working papers 2005-32, University of Connecticut, Department of Economics.
  4. Kyrtsou, Catherine & Labys, Walter C., 2007. "Detecting positive feedback in multivariate time series: The case of metal prices and US inflation," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 377(1), pages 227-229.
  5. Dimitrios Hristu-Varsakelis & Catherine Kyrtsou, 2010. "Testing for Granger Causality in the Presence of Chaotic Dynamics," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 53(2), pages 323-327.
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