Testing The Causal Relationship Between Domestic Credit And Reserve Components Of A Country'S Monetary Base
AbstractAn important factor that helps distinquish between alternative balance of payments theories is the assumed causal relationship between the domestic credit and reserve components of a country's monetary base. This paper reports test results of this causal relationship in Austrailia, Belgium, France, Germany, Norway and Sweden. Three causal detection methods are used: the haugh test, the granger test and the Sims test. Two conclusions are drawn. First, the causal relationship does not run unidirectionally from domestic credit to reserves as the Monetary Approach to the Balance of Paymewnts and many tests of that approach assume. Second, the results are quite robust across alternative causality tests.
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Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0404016.
Length: 22 pages
Date of creation: 29 Apr 2004
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Note: Type of Document - pdf; pages: 22
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Causality tests; Monetary approach to balance of payments; domestic credit; reserves; monetary base;
Find related papers by JEL classification:
- E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- F47 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Forecasting and Simulation: Models and Applications
- F31 - International Economics - - International Finance - - - Foreign Exchange
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