Productivity, Inflation, And Investment: An Analysis Of Causality
This paper elaborates a Vector Error Correction (VEC) in order to determine the causality between inflation and productivity, and between the productivity and investment in Mexico. A VEC allows a causality analysis among cointegrated variables with the same integration order [Hall and Milne, 1994]. This work incorporates the test of constancy in the cointegration rank developed by Quintos (1997). The results show a consistent and bidirectional causality between inflation and productivity. Furthermore, these results denote that some investment components (mainly machinery and equipment imports, and construction) have a strong link with productivity.
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- Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
- Hall, Stephen G & Milne, Alistair, 1994. "The Relevance of P-Star Analysis to UK Monetary Policy," Economic Journal, Royal Economic Society, vol. 104(424), pages 597-604, May.
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- Xiaming Liu & Haiyan Song & Peter Romilly, 1997. "An empirical investigation of the causal relationship between openness and economic growth in China," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1679-1686.
- Quintos, Carmela E., 1998. "Stability tests in error correction models," Journal of Econometrics, Elsevier, vol. 82(2), pages 289-315, February.
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- Yash P. Mehra, 1993. "Unit labor costs and the price level," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 35-52.
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