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Cointegrated money in production function: evidence from a developing country

  • Muhammad Nasir

    ()

    (Pakistan Institute of Development Economics, Islamabad, Pakistan)

  • Qasim Jan

    ()

    (University of Peshawar, Peshawar, Pakistan)

  • Muhammad Javid

    ()

    (Pakistan Institute of Development Economics, Islamabad, Pakistan)

The notion that real money balances is a factor input has attracted considerable amount of attention from researchers and academicians. However, the debate is controversial and the consensus has yet to be developed. This issue becomes more important when a country follows contractionary monetary policy to curb inflation. The limited research for developing countries with sophisticated econometric techniques powered us to conduct this study. The underlying study employs cointegration approach to investigate the validity of money in production function of a developing country for the period 1964-2008. The cointegration results confirm money as an important factor input in the production function in the long run. The variance decomposition results surface money as greater contributor than labor and capital to output variability.

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Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 31 (2011)
Issue (Month): 4 ()
Pages: 2996-3005

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Handle: RePEc:ebl:ecbull:eb-11-00041
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  1. Moroney, John R, 1972. "The Current State of Money and Production Theory," American Economic Review, American Economic Association, vol. 62(2), pages 335-43, May.
  2. Milton Friedman, 1959. "The Demand for Money: Some Theoretical and Empirical Results," NBER Chapters, in: The Demand for Money: Some Theoretical and Empirical Results, pages 1-29 National Bureau of Economic Research, Inc.
  3. Sinai, Allen & Stokes, Houston H, 1972. "Real Money Balances: An Omitted Variable from the Production Functions?," The Review of Economics and Statistics, MIT Press, vol. 54(3), pages 290-96, August.
  4. Fischer, Stanley, 1974. "Money and the Production Function," Economic Inquiry, Western Economic Association International, vol. 12(4), pages 517-33, December.
  5. Faiz ur, rehman & Wasim, shahid malik, 2010. "A structural VAR (SVAR) approach to cost channel of monetary policy," MPRA Paper 32349, University Library of Munich, Germany, revised 09 Feb 2011.
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