An empirical investigation among real, monetary and financial variables
AbstractThis paper attempts to make an empirical contribution to the literature on the relationships among real, monetary and financial variables of the economy. Using the methodology of Granger's causality tests, our results indicate that: (i) Money Supply and S&P 500 exhibit contemporaneous causality; (ii) Money Supply seems to lead the S&P 500 Index and, (iii) the S&P 500 Index seems to lead the Industrial Production Index. Our findings tend to confirm the important role played by Money Supply in the economy and the popular hypothesis that stock return fluctuations are a leading indicator of future real economic activity. However, our results also show that the causal relationships among these three economic variables are not as statistically significant as the economic and financial literature suggests.
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