The Relation Between Money, Income and Prices in South Africa
The main purpose of this paper is to determine whether inflation in South Africa has been caused by excessive monetary expansion over the period 1966-1997, or whether the money supply has merely been passive in the inflationary process. The analysis first draws on Friedman and Schwartz's (1982) theoretical exposition to transform South Africa's stable M3 money demand function into a theory of money, income and prices. Long-run price equations are then estimated with consumer price inflation as the relevant inflation variable, given that the M3 money demand function is deflated by consumer price inflation. To validate the econometric interpretation of the long-run price equations, causality tests based on the methodology developed by Pesaran et al. (1996) together with non-nested tests are used. These show that money and 'excess' money are endogenous to consumer price inflation and broad measures of inflation. The most important policy implication of an endogenously determined money supply is that a long-run analysis of inflation in South Africa should search beyond the realms of the Central Bank alone, and focus on the potential inflationary impact of structural and/or cost-push forces of inflation.
|Date of creation:||Jul 1999|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/
|Order Information:|| Email: |
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.:
- Panicos O. Demetriades & Khaled A.Hussein, 1995.
"Does Financial Development Cause Economic Growth? Time-Series Evidence from 16 Countries,"
Keele Department of Economics Discussion Papers (1995-2001)
95/13, Department of Economics, Keele University.
- Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
- Pesaran, M.H., 1996.
"The Role of Economic Theory in Modelling the Long Run,"
Cambridge Working Papers in Economics
9612, Faculty of Economics, University of Cambridge.
- Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-91, January.
- Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
- Perron, P, 1988.
"The Great Crash, The Oil Price Shock And The Unit Root Hypothesis,"
338, Princeton, Department of Economics - Econometric Research Program.
- Perron, Pierre, 1989. "The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis," Econometrica, Econometric Society, vol. 57(6), pages 1361-1401, November.
- D.J J. Botha, 1997. "The South African Reserve Bank and the Rate of Interest," South African Journal of Economics, Economic Society of South Africa, vol. 65(4), pages 247-262, December.
- Friedman, Milton, 1971. "A Monetary Theory of Nominal Income," Journal of Political Economy, University of Chicago Press, vol. 79(2), pages 323-37, March-Apr.
- Peter C.B. Phillips & Pierre Perron, 1986.
"Testing for a Unit Root in Time Series Regression,"
Cowles Foundation Discussion Papers
795R, Cowles Foundation for Research in Economics, Yale University, revised Sep 1987.
- Phillips, P.C.B., 1986. "Testing for a Unit Root in Time Series Regression," Cahiers de recherche 8633, Universite de Montreal, Departement de sciences economiques.
- Tom Doan, . "PPUNIT: RATS procedure to perform Phillips-Perron Unit Root test," Statistical Software Components RTS00160, Boston College Department of Economics.
- Wu, De-Min, 1983. "Tests of Causality, Predeterminedness and Exogeneity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(3), pages 547-58, October.
- 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.
- Friedman, Milton & Schwartz, Anna J, 1991. "Alternative Approaches to Analyzing Economic Data," American Economic Review, American Economic Association, vol. 81(1), pages 39-49, March.
- Friedman, Milton, 1970.
"A Theoretical Framework for Monetary Analysis,"
Journal of Political Economy,
University of Chicago Press, vol. 78(2), pages 193-238, March-Apr.
- David F. Hendry & Neil R. Ericsson, 1989. "An econometric analysis of UK money demand in MONETARY TRENDS IN THE UNITED STATES AND THE UNITED KINGDOM by Milton Friedman and Anna J. Schwartz," International Finance Discussion Papers 355, Board of Governors of the Federal Reserve System (U.S.).
- Urbain, J-P., 1991.
"On Weak Exogeneity in Error Correction Models,"
9103, Liege - Centre de Recherches Economiques et Demographiques.
- Goodhart, Charles A E, 1982. "Monetary Trends in the United States and the United Kingdom: A British Review," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1540-51, December.
- 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.
- B. J. Moore & B. W. Smit, 1986. "Wages, Money and Inflation," South African Journal of Economics, Economic Society of South Africa, vol. 54(1), pages 48-56, 03.
- Howells, Peter & Hussein, Khaled, 1998. "The Endogeneity of Money: Evidence from the G7," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(3), pages 329-40, August.
- repec:fth:inseep:9645 is not listed on IDEAS
- Perron, P., 1989.
"Testing For A Unit Root In A Time Series With A Changing Mean,"
347, Princeton, Department of Economics - Econometric Research Program.
- Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-62, April.
- Pesaran, M. H. & Shin, Y. & Smith, R. J., 1996. "Testing for the 'Existence of a Long-run Relationship'," Cambridge Working Papers in Economics 9622, Faculty of Economics, University of Cambridge.
- Friedman, Milton, 1977. "Nobel Lecture: Inflation and Unemployment," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 451-72, June.
When requesting a correction, please mention this item's handle: RePEc:ukc:ukcedp:9909. 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: (Tracey Girling)
If references are entirely missing, you can add them using this form.