Evidence on the Direction of Causation in the Money-Income Relationship: An Alternative Methodology

Prof. Abdulnasser Hatemi-J () and Manuchehr Irandoust ()

No 2004:1, Working Papers from Örebro University, Swedish Business School

Abstract: In this paper, the evidence reported in the large literature on testing for money-output Granger causality is revisited by applying an alternative methodology based on the leveraged bootstrapped simulation techniques, using data from Denmark and Sweden. Based on the estimation results, the authors find unidirectional causality from money to output for the sample

countries. The established unidirectional causality between money and output supports monetary business-cycle models and reveals two policy implications. First, active monetary policy has a role in reducing the severity of the business cycles and unobservable shocks. Second, in looking for the sources of output fluctuations, money is a major factor.

Keywords: money supply; output growth; Granger causality; leveraged bootstrapped simulation. (search for similar items in EconPapers)
JEL-codes: C32 E51 (search for similar items in EconPapers)
Date: Written 2004-09-29

Published in Empirical Economics, 2006, pages 25.

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Persistent link: http://EconPapers.repec.org/RePEc:hhs:oruesi:2004_001

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