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Evidence on the Direction of Causation in the Money-Income Relationship: An Alternative Methodology

Author

Listed:
  • Abdulnasser , Hatemi-J

    (Department of Economics, University of Skövde,)

  • Manuchehr, Irandoust

    (Department of Business, Economics, Statistics and Informatics)

Abstract

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.

Suggested Citation

  • Abdulnasser , Hatemi-J & Manuchehr, Irandoust, 2004. "Evidence on the Direction of Causation in the Money-Income Relationship: An Alternative Methodology," Working Papers 2004:1, Örebro University, School of Business.
  • Handle: RePEc:hhs:oruesi:2004_001
    as

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    More about this item

    Keywords

    money supply; output growth; Granger causality; leveraged bootstrapped simulation.;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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