The Vanishing Role of Money in the Macroeconomy - An Empirical Investigation Based On Spectral and Wavelet Analysis

D. M. Nachane and Amlendu Kumar Dubey
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D. M. Nachane: Indira Gandhi Institute of Development Research

Macroeconomics Working Papers from East Asian Bureau of Economic Research

Abstract: The recent de-emphasizing of the role of money in both theoretical macroeconomics as well as in the practical conduct of monetary policy sits uneasily with the idea that inflation is a monetary phenomenon. Empirical evidence has, however, been accumulating, pointing to an important leading indicator role for money and credit aggregates with respect to long term inflationary trends. Such a role could arise from monetary aggregates furnishing a nominal anchor for inflationary expectations, from their influence on the term structure of interest rates and from their affecting transactions costs in markets. Our paper attempts to assess the informational content role of money in the Indian economy by a separation of these effects across time scales and frequency bands, using the techniques of wavelet analysis and band spectral analysis respectively. Our results indicate variability of causal relations across frequency ranges and time scales, as also occasional causal reversals.

Keywords: Money; inflation; Cointegration; Causality; Decomposition; band spectra; wavelets (search for similar items in EconPapers)
JEL-codes: C32 E51 E52 (search for similar items in EconPapers)
Date: 2008-01
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Citations: View citations in EconPapers (1)

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