Economic Liberalization and the Causal Relations among Money, Income, and Prices: The Case of Pakistan

Fazal Husain () and Abdul Rashid ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study re-examines the causal relations between money and the two variables, i.e., income and prices. Using annual data from 1959/60 to 2003/04, examining the stochastic properties of the variables used in the analysis, and taking care of the shifts in the series due to the start of the economic liberalization program in the early 1990s, we investigate the causal relations between real money and real income, between nominal money and nominal income, and between nominal money and prices. The analysis indicates, in general, the long run relationship among money, income, and prices. The analysis further suggests a one way causation from income to money in the long run implying that probably real factors rather than money supply has played a major role in increasing Pakistan’s national income. The study fails to find the active role of money in changing income even after taking care of possible shifts in these variables due to the economic reforms. As Regards the causal relationship between money and prices, the analysis suggests a unidirectional causality from money to prices implying monetary expansion increases inflation in Pakistan.

Keywords: Money; Income; Prices; Economic Liberalization; Causal Relations; Pakistan (search for similar items in EconPapers)
JEL-codes: E40 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cwa, nep-mac and nep-mon
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Related works:
Working Paper: Economic Liberalization and the Causal Relations among Money, Income, and Prices: The Case of Pakistan (2006)
Journal Article: ECONOMIC LIBERALIZATION AND THE CAUSAL RELATIONS AMONG MONEY, INCOME, AND PRICES: The case of Pakistan (2002)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:3241

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