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The stability of velocity: a test for seasonal cointegration

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  • R. Stuart McDougall

Abstract

This paper applies seasonal integration and cointegration tests to assess the non-stationary characteristics of velocity using 25 years of quarterly unadjusted New Zealand money and income data. Velocity is clearly non-stationary on the basis of the seasonal unit root tests and there is some evidence of a changing seasonal pattern. The non-stationarity of velocity is confirmed by the acceptance of the hypothesis of non-cointegration between money and income at both the zero and biannual frequency. On balance, the cointegration results indicate no long-run relationship between money and income. While not addressing the issue of direction of causation, these results could be interpreted as questioning the monetarist view that the stable relationship between money and income can be exploited so that important macroeconomic variables can be influenced by manipulating the money supply.

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  • R. Stuart McDougall, 1994. "The stability of velocity: a test for seasonal cointegration," Applied Economics Letters, Taylor & Francis Journals, vol. 1(9), pages 152-157.
    • Handle: RePEc:taf:apeclt:v:1:y:1994:i:9:p:152-157
    DOI: 10.1080/135048594358014
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    References listed on IDEAS

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    1. Engle, R. F. & Granger, C. W. J. & Hylleberg, S. & Lee, H. S., 1993. "The Japanese consumption function," Journal of Econometrics, Elsevier, vol. 55(1-2), pages 275-298.
    2. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    3. Hylleberg, S. & Engle, R. F. & Granger, C. W. J. & Yoo, B. S., 1990. "Seasonal integration and cointegration," Journal of Econometrics, Elsevier, vol. 44(1-2), pages 215-238.
    4. Siklos, Pierre L, 1993. "Income Velocity and Institutional Change: Some New Time Series Evidence, 1870-1986," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(3), pages 377-392, August.
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    Cited by:

    1. Rita Biswas & Hany Shawky, 1996. "The impact of political shocks on cointegrated exchange rate series," Applied Economics Letters, Taylor & Francis Journals, vol. 3(1), pages 15-19.
    2. Evren Erdoğan Cosar, 2006. "Seasonal behaviour of the consumer price index of Turkey," Applied Economics Letters, Taylor & Francis Journals, vol. 13(7), pages 449-455.
    3. Gulbin Sahinbeyoglu, 1996. "The Stability of Money Multiplier : A Test for Cointregration," Discussion Papers 9603, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.

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