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Causal order between money, income and price through graph theoretic approach for Pakistan

Author

Listed:
  • Zahid Asghar

    () (Quaid-i-Azam University, Islamabad)

  • Nighat Jahandad

    () (Quaid-i-Azam University, Islamabad)

Abstract

We investigate the causal relationship between money, income and price for Pakistan using quarterly data from 1971-2003. We find that both money supply and prices cause income thus verifying the monetarists' point of view. Taking account of time series properties the methodology applies recent developments in graph theoretical causal search algorithms developed by Pearl, Glymour, Spirtes(1993) and Pearl(2000). One main merit of graph theoretic approach is that it overcomes problems of over identification in VAR models, Choleski decomposition on the other hand can only be applied for just an arbitrarily identified VAR models.

Suggested Citation

  • Zahid Asghar & Nighat Jahandad, 2010. "Causal order between money, income and price through graph theoretic approach for Pakistan," Economics Bulletin, AccessEcon, vol. 30(3), pages 2515-2523.
  • Handle: RePEc:ebl:ecbull:eb-10-00174
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    More about this item

    Keywords

    Causality; Choleski Decomposition; Structural VAR; Graph theoretic models;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics

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