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Does money matter? Evidence from vector error-correction for Mexico

Author

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  • Ansari, M. I.
  • Ahmed, S. M.

    (Albany State University, USA
    Cameron University, USA)

Abstract

Following Friedman and Meiselman (1963), the role of money supply in determining income and output has been extensively studied both in the context of developed and developing economies. This paper tests the money-output relationship for Mexico. Drawing on the latest development in time series and cointegration analysis, we estimate a multivariate error-correction model (VECM). Results seem to indicate a unidirectional causation from money to output, implying monetary policy effectiveness. A variety of diagnostic tests are employed, which indicate these results to be quite robust. The results seem to be consistent with the theoretical prediction because Mexico has gradually moved away from a regime of fixed to a flexible exchange rate over this period.

Suggested Citation

  • Ansari, M. I. & Ahmed, S. M., 2007. "Does money matter? Evidence from vector error-correction for Mexico," Journal of Developing Areas, Tennessee State University, College of Business, vol. 41(1), pages 185-202, September.
    • Handle: RePEc:jda:journl:vol.41:year:2007:issue1:pp:185-202
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    References listed on IDEAS

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    3. Adenomon, Monday Osagie & Oyejola, Benjamin Agboola, 2013. "Impact of Agriculture and Industrialization on GDP in Nigeria: Evidence from VAR and SVAR Models," MPRA Paper 75268, University Library of Munich, Germany, revised 09 Jun 2013.

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    More about this item

    Keywords

    money; evidence; vector error-correction; Mexico;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
    • O54 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean

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