Evidence on the Direction of Causation in the Money-Income Relationship: An Alternative Methodology
In this paper, the evidence reported in the large literature on testing for money-output Granger causality is revisited by applying an alternative methodology based on the leveraged bootstrapped simulation techniques, using data from Denmark and Sweden. Based on the estimation results, the authors find unidirectional causality from money to output for the sample countries. The established unidirectional causality between money and output supports monetary business-cycle models and reveals two policy implications. First, active monetary policy has a role in reducing the severity of the business cycles and unobservable shocks. Second, in looking for the sources of output fluctuations, money is a major factor.
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|Date of creation:||29 Sep 2004|
|Date of revision:|
|Publication status:||Published in Empirical Economics, 2006, pages 25.|
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