Assessing the Casual Relationship between Euro-Area Money and Price in Time-Varying Environment

Stephen Hall, George Hondroyiannis, P.A.V.B. Swamy and George Tavlas

No 09/17, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: The paper provides new evidence on the causal relationship between money and price for the euro area using quarterly data for the period 1980 to 2006, employing two alternative methods of estimation: the vector error correction (VEC) and time-varying coefficient (TVC) estimation techniques. The latter technique has the advantage over the former technique in that it can deal with possible specification biases and spurious relationships that may have arisen from structural changes. The empirical results from the VEC method reveal a bidirectional causal relationship between money and price. Contrary, the results from the TVC technique suggest that money is acting as an exogenous process determining the price level.

Keywords: Causality; VEC, Time Varying Coefficient Estimation; Euro Area (search for similar items in EconPapers)
JEL-codes: C20 E41 (search for similar items in EconPapers)
Date: 2009-09
New Economics Papers: this item is included in nep-eec and nep-mon
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Citations: View citations in EconPapers (6)

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