Are Money, Interest Rates, Output and the Exchange Rate Cointegrated? Implications for Monetary Targeting

Maria Socorro Gochoco
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Maria Socorro Gochoco: Associate Professor, School of Economics, University of the Philippines Diliman

Philippine Review of Economics, 1993, vol. 30, issue 1, 91-101

Abstract: This study examines the relationship between various monetary aggregates and real income, the 91-day Treasury bill rate, and the nominal exchange rate using the Engle and Granger cointegration method. The idea is that the choice for a monetary target should be controllable by the Central Bank and must have a stable and predictable relationship with variables of interest to policymakers. The results show that only M1 is cointegrated with real income, the 91-day Treasury bill rate, and the nominal exchange rate taken together. Overall, the results imply that M1 is the best choice for a target variable.

Date: 1993
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