On the Temporal Causal Relationship between Macroeconomic Variables: Empirical Evidence from India
The present study examines the dynamic interactions among macroeconomic variables such as real output, prices, money supply, interest rate and exchange rate in India during the pre-economic crisis and economic crisis periods, using the ARDL bounds test for cointegration, Johansen and Juselius (1990) multivariate cointegration test, Granger causality/Block exogeneity Wald test based on Vector Error Correction Model, variance decomposition analysis and impulse response functions. The empirical results reveal a stronger long-run bilateral relationship between real output, price level, interest rate and exchange rate during the pre-crisis sample period. Moreover, the empirical results confirm a unidirectional short-run causality running from price level to exchange rate, interest rate to price level and real output to money supply during the pre-crisis period. Also, it is evident from the test results that there exist short-run bidirectional relationships running between real output and exchange rate, price level and interest rate in the pre-crisis era. In addition, the feedback relationship is also observed between interest rate and exchange rate variables in the short-run. Most importantly, long-run bidirectional causality is found between real output, exchange rate and interest rate during the economic crisis period. And the study results indicate short-run bidirectional causality between money supply and exchange rate, interest rate and price level and interest rate and output in India during the crisis era. Also, a short-run unidirectional causality runs from prices to real output in the crisis period.
|Date of creation:||07 May 2013|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996.
"Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration,"
1996_07, York University, Department of Economics.
- MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct.
- Mackinnon, J.G. & Haug, A.A. & Michelis, L., 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," G.R.E.Q.A.M. 96a09, Universite Aix-Marseille III.
- Inder Sekhar Yadav & M.A. Lagesh, 2011. " Macroeconomic Relationship in India: ARDL Evidence on Cointegration and Causality," Journal of Quantitative Economics, The Indian Econometric Society, vol. 9(1), pages 156-168.
- Jiranyakul, Komain, 2009. "Relationship among Money, Prices and Aggregate Output in Thailand," MPRA Paper 46963, University Library of Munich, Germany.
- Friedman, Benjamin M & Kuttner, Kenneth N, 1992. "Money, Income, Prices, and Interest Rates," American Economic Review, American Economic Association, vol. 82(3), pages 472-92, June.
- MUHD-ZULKHIBRI, Abdul Majid, 2007. "Causality Link Between Money, Output And Prices In Malaysia: An Empirical Re-Examination," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 7(1).
- Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
- Engle, Robert F & Granger, Clive W J, 1987.
"Co-integration and Error Correction: Representation, Estimation, and Testing,"
Econometric Society, vol. 55(2), pages 251-76, March.
- Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
- Helmut Herwartz & Hans-Eggert Reimers, 2006.
"Long-Run Links among Money, Prices and Output: Worldwide Evidence,"
German Economic Review,
Verein für Socialpolitik, vol. 7, pages 65-86, 02.
- Reimers, Hans-Eggert & Herwartz, Helmut, 2001. "Long-Run Links Among Money, Prices, and Output: World-Wide Evidence," Discussion Paper Series 1: Economic Studies 2001,14, Deutsche Bundesbank, Research Centre.
- Miller, Stephen M, 1991. "Monetary Dynamics: An Application of Cointegration and Error-Correction Modeling," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 23(2), pages 139-54, May.
- Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
- Stock, James H & Watson, Mark W, 1993.
"A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems,"
Econometric Society, vol. 61(4), pages 783-820, July.
- Tom Doan, . "SWDOLS: RATS procedure to estimate cointegrating vectors using dynamic OLS," Statistical Software Components RTS00207, Boston College Department of Economics.
- James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
- M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
- Gaurang Rami, 2010. "Causality between Money, Prices and Output in India (1951-2005): A Granger Causality Approach," Journal of Quantitative Economics, The Indian Econometric Society, vol. 8(2), pages 20-41.
- Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
- Biswajit Maitra, 2011. "Anticipated Money, Unanticipated Money and Output Variations in Singapore," Journal of Quantitative Economics, The Indian Econometric Society, vol. 9(1), pages 118-133.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:46803. 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)
If references are entirely missing, you can add them using this form.