IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/38604.html
   My bibliography  Save this paper

Money and prices in the Maghreb countries: cointegration and causality analyses

Author

Listed:
  • Benamar, Abdelhak
  • CHERIF, Nasreddine
  • Benbouziane, Mohamed

Abstract

Inflation has been the major global economic problem for most economies throughout the world over the last three decades. It affects individuals, businesses and governments. Many competing hypotheses have been advanced in the literature to explain its causes and give the appropriate remedial policies. One of these hypotheses is central to the quantity theory of money. According to this hypothesis, inflation results solely from a maintained expansion of the money stock at rates in excess of increases in the amount of money demanded in the economy. The paper examines the money-price relationship in the Three Maghreb countries (namely Algeria, Morocco and Tunisia) using Granger causality test. The results do not tend to support the quantity theorist’s view that money and prices have a long-run relationship, i.e., they do not tend to drift apart in the long run. However, as suggested by Granger (1986) money and prices could still cointegrate if other variables, which may have influenced prices, were included in the cointegration regressions. Second, the finding of a unidirectional causation from money to prices in the case of Morocco and Tunisia is in line with the monetarist’s view that money precedes and causes inflation. In fact, this finding supports Darrat’s (1986) finding that money causes inflation in Morocco and Tunisia. Thus the monetary authorities in these two countries can consider control of the money supply (M1) or (M2) to influence and control inflation. As suggested by monetarists, this can be best achieved by maintaining a steady rate of growth of the money supply, roughly corresponding to the long-run growth of the real output. Our results also show the apparent absence of causality between money and prices in the case of Algeria which is not easy to explain. A possible explanation may be that the data for the Consumer Price Index (CPI) are not reliable. This may be true given that the prices, which are reported by the authorities, are always lower than those actually paid in the market place.

Suggested Citation

  • Benamar, Abdelhak & CHERIF, Nasreddine & Benbouziane, Mohamed, 2011. "Money and prices in the Maghreb countries: cointegration and causality analyses," MPRA Paper 38604, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:38604
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/38604/1/MPRA_paper_38604.pdf
    File Function: original version
    Download Restriction: no

    References listed on IDEAS

    as
    1. 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.
    2. Engle, Robert F. & Yoo, Byung Sam, 1987. "Forecasting and testing in co-integrated systems," Journal of Econometrics, Elsevier, vol. 35(1), pages 143-159, May.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Cointegration – bootstrap- money – prices- Granger causality – inflation – Maghreb;

    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
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:38604. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.