Revisiting money-output causality from a Bayesian logistic smooth transition VECM perspective

Deborah Gefang

No 08/5, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: This paper proposes a Baysian approach to explore money-output causality within a logistic smooth transition VECM framework. Our empirical results provide substantial evidence that the postwar US money-output relationship is nonlinear, with regime changes mainly governed by the lagged inflation rates. More importantly, we obtain strong support for long-run non-causality and nonlinear Grangercausality from money to output. Furthermore, our impulse response analysis reveals that a shock to money appears to have negative accumulative impact on real output over the next fifty years, which calls for more caution when using money as a policy instrument.

Date: 2008-01
New Economics Papers: this item is included in nep-cba, nep-ets, nep-mac and nep-mon
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