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Revisiting the Temporal Causality between Money and Income

Author

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  • Rangan Gupta

    (Department of Economics, University of Pretoria)

Abstract

The paper revisits the ever enduring question of whether â"money matters". The study uses the Sims' (1972) methodology over the quarterly time-series data spanning fifty years post World War II for the U.S. economy. The results indicate bi-directional causality between money and income. When we apply Granger Causality tests we find that income Granger causes money. The causality disappears when we add interest rates. Next when we use an Error Correction Model the results of the traditional Granger causality tests hold true in the bivariate system. But, we observe bi-causality under longer lag specifications, and when extra variables are added.

Suggested Citation

  • Rangan Gupta, 2005. "Revisiting the Temporal Causality between Money and Income," Working Papers 200501, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:200501
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    More about this item

    Keywords

    Causality; Error Correction Models;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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