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Causal order between money, income and price through graph theoretic approach for Pakistan

Zahid Asghar () and Nighat Jahandad ()
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Nighat Jahandad: Quaid-i-Azam University, Islamabad

Economics Bulletin, 2010, vol. 30, issue 3, 2515-2523

Abstract: We investigate the causal relationship between money, income and price for Pakistan using quarterly data from 1971-2003. We find that both money supply and prices cause income thus verifying the monetarists' point of view. Taking account of time series properties the methodology applies recent developments in graph theoretical causal search algorithms developed by Pearl, Glymour, Spirtes(1993) and Pearl(2000). One main merit of graph theoretic approach is that it overcomes problems of over identification in VAR models, Choleski decomposition on the other hand can only be applied for just an arbitrarily identified VAR models.

Keywords: Causality; Choleski Decomposition; Structural VAR; Graph theoretic models (search for similar items in EconPapers)
JEL-codes: C4 E0 (search for similar items in EconPapers)
Date: 2010-09-28
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