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Causality in the United Kingdom: Results from an Open Economy

  • Mark Wheeler

    (Western Michigan University)

Registered author(s):

    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.

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    File URL: http://college.holycross.edu/RePEc/eej/Archive/Volume17/V17N4P439_449.pdf
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    Article provided by Eastern Economic Association in its journal Eastern Economic Journal.

    Volume (Year): 17 (1991)
    Issue (Month): 4 (Oct-Dec)
    Pages: 439-449

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    Handle: RePEc:eej:eeconj:v:17:y:1991:i:4:p:439-449
    Contact details of provider: Postal: c/o Dr. Alexandre Olbrecht, The Anisfield School of Business 205, Ramapo College, 505 Ramapo Valley Road, Ramapo, New Jersey 07430, USA
    Phone: (201) 684-7346
    Web page: http://www.ramapo.edu/eea/journal.html
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    1. Runkle, David E, 1987. "Vector Autoregressions and Reality: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 454, October.
    2. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
    3. Ben S. Bernanke, 1986. "Alternative Explanations of the Money-Income Correlation," NBER Working Papers 1842, National Bureau of Economic Research, Inc.
    4. David E. Runkle, 1987. "Vector autoregressions and reality," Staff Report 107, Federal Reserve Bank of Minneapolis.
    5. 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 342-51, August.
    6. Robert B. Litterman & Laurence Weiss, 1983. "Money, Real Interest Rates, and Output: A Reinterpretation of Postwar U.S. Data," NBER Working Papers 1077, National Bureau of Economic Research, Inc.
    7. Runkle, David E, 1987. "Vector Autoregressions and Reality," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 437-42, October.
    8. Cooley, Thomas F. & Leroy, Stephen F., 1985. "Atheoretical macroeconometrics: A critique," Journal of Monetary Economics, Elsevier, vol. 16(3), pages 283-308, November.
    9. Pagan, Adrian, 1987. " Three Econometric Methodologies: A Critical Appraisal," Journal of Economic Surveys, Wiley Blackwell, vol. 1(1), pages 3-24.
    10. 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 419-26, November.
    11. 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.
    12. 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.
    13. 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 417-23, June.
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