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Does money causes output? evidence from Indonesia

Author

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  • Mahrus Lutfi Adi Kurniawan
  • Nurul Azizah Az Zakiyyah
  • Aulia Hapsari Juwita

Abstract

The debate on the role of monetary policy on output is growing and is of interest to researchers. Above the debate is the determination of the money-output relationship not only reflects the dynamic relationship between monetary aggregates and economic activity (output) but also involves important issues regarding the effectiveness of monetary policy in real economic activity. This study uses Bayesian vector autoregressive (BVAR) to construct a structural model of money-output in Indonesia. The results show that money plays an important role in output and narrow money has predictive power to the output. Another finding is that the exchange rate has greater variation and response size to output. The implication of the research is that monetary policy should be able to influence money that has a stronger predictive power on output and maintain exchange rate stability.

Suggested Citation

  • Mahrus Lutfi Adi Kurniawan & Nurul Azizah Az Zakiyyah & Aulia Hapsari Juwita, 2025. "Does money causes output? evidence from Indonesia," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 18(6), pages 453-464.
    • Handle: RePEc:ids:ijmefi:v:18:y:2025:i:6:p:453-464
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