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Vector Autoregression Evidence On Monetarism: A Focus On Some Developing Economies In South Asia

Author

Listed:
  • MUDABBER AHMED

    (Economics Department, University of Chittagong, Chittagong-4331, Bangladesh)

  • U. L. G. RAO

    (Economics Department, Dalhousie University, Halifax, NS, B3H 3J5, Canada)

Abstract

The objective of this paper is to test the validity of two views of monetarism in Bangladesh, India, and Pakistan. A Structural Vector Autoregressive (SVAR) model is developed and the objective is accomplished by conducting Granger causality tests and estimating variance decompositions and impulse response functions. The first view of monetarism that changes in the quantity of money cause, lead and are positively related to changes in prices at least in the medium to long time horizon is supported in Bangladesh, India, and Pakistan. The second view of monetarism that changes in the quantity of money cause, lead and are positively related to changes in output at least in the short to medium time horizon is not supported. The implication of such a result is that an expansionary monetary policy only fuels prices with insignificant effects on output. It supports the view of real business cycle theorists who postulate that policy changes only affect prices.

Suggested Citation

  • Mudabber Ahmed & U. L. G. Rao, 2006. "Vector Autoregression Evidence On Monetarism: A Focus On Some Developing Economies In South Asia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 51(01), pages 53-66.
    • Handle: RePEc:wsi:serxxx:v:51:y:2006:i:01:n:s0217590806002226
    DOI: 10.1142/S0217590806002226
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    Cited by:

    1. Moid U. Ahmad, 2015. "Does CRR and Repo Change Affect Corporate Output?," Jindal Journal of Business Research, , vol. 4(1-2), pages 115-125, June.
    2. Kreiter, Zebulun & Paul, Tapas Kumar, 2010. "Deficit Financing and Inflation in Bangladesh: A Vector Autoregressive Analysis," MPRA Paper 45981, University Library of Munich, Germany.
    3. Moid U. AHMAD & Shamima NASRIN, 2017. "An analysis of the effect of monetary policy changes on macroeconomic factors," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(2(611), S), pages 303-318, Summer.

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