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Causality in the United Kingdom: Results from an Open Economy

Author

Listed:
  • Mark Wheeler

    (Western Michigan University)

Abstract

This study examines money-income causality in the United Kingdom. Unlike most previous studies, this study finds unidirectional causality running from U.K. M1 to U.K. income. Furthermore, U.S. M1 is found to cause U.K. M1 only weakly and does not cause U.K. income. These findings are inconsistent with the view that the United Kingdom functions as a small, open economy. The standard result is that movements in the money supply of the reserve currency country, the United States, leads to movements in the money supply and nominal income of other countries, while the domestic money supply has no impact on domestic income.

Suggested Citation

  • Mark Wheeler, 1991. "Causality in the United Kingdom: Results from an Open Economy," Eastern Economic Journal, Eastern Economic Association, vol. 17(4), pages 439-449, Oct-Dec.
  • Handle: RePEc:eej:eeconj:v:17:y:1991:i:4:p:439-449
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume17/V17N4P439_449.pdf
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    References listed on IDEAS

    as
    1. Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-442, October.
    2. Williams, David & Goodhart, C A E & Gowland, D H, 1976. "Money, Income, and Causality: The U.K. Experience," American Economic Review, American Economic Association, vol. 66(3), pages 417-423, June.
    3. Caines, P. E. & Keng, C. W. & Sethi, S. P., 1981. "Causality analysis and multivariate Autoregressive modelling with an application to supermarket sales analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 3(1), pages 267-298, November.
    4. Litterman, Robert B & Weiss, Laurence M, 1985. "Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data," Econometrica, Econometric Society, vol. 53(1), pages 129-156, January.
    5. Pagan, Adrian, 1987. " Three Econometric Methodologies: A Critical Appraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 1(1), pages 3-24.
    6. Mixon, J Wilson, Jr & Pratt, Leila J & Wallace, Myles S, 1979. "Cross-National Money to Income Causality: U.S. Money to U.K. Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(4), pages 419-426, November.
    7. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
    8. Bernanke, Ben S., 1986. "Alternative explanations of the money-income correlation," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 25(1), pages 49-99, January.
    9. Runkle, David E, 1987. "Vector Autoregressions and Reality: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 454-454, October.
    10. David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis.
    11. Cuddington, John T, 1981. "Money, Income, and Causality in the United Kingdom: An Empirical Reexamination," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 13(3), pages 342-351, August.
    12. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    13. Nelson, Charles R. & Plosser, Charles I., 1982. "Trends and random walks in macroeconmic time series : Some evidence and implications," Journal of Monetary Economics, Elsevier, vol. 10(2), pages 139-162.
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    More about this item

    Keywords

    M1; Money Supply; Money; Open Economy; Supply;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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