CAUSALITY LINK BETWEEN MONEY, OUTPUT AND PRICES IN MALAYSIA: AN EMPIRICAL RE-EXAMINATION

Applied Econometrics and International Development, 2007, vol. 7, issue 1

Abstract: This paper re-examines the causality relationship between monetary aggregates, output and prices in the case of Malaysia. The study is based upon a vector autoregression (VAR) model applying the Granger no-causality procedure developed by Toda and Yamamoto (1995). The results indicate a two-way causality running between monetary aggregates, M2 and M3 and output which is consistent with theoretically conjecture by Keynesian and Monetarist views whereas there is a one-way causality running from monetary aggregate, M1 and output. In addition, the results suggest that all monetary aggregates have a strong one-way causality running from money to prices but no evidence for the opposite causality. Thus, the results add the empirical support to the argument in the literature that inflation is a monetary phenomenon.

Keywords: money-output; causality; Toda-Yamamoto; prices (search for similar items in EconPapers)
JEL-codes: E51 C32 (search for similar items in EconPapers)

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