Money, Income and Prices in Pakistan: A Bi-variat and Tri-varate Causility

Kalbe Abbas and Fazal Husain ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper re-examines the causal relationship between money and income and between money and prices in Pakistan. Using an annual data set for Fiscal Years 1959/60 to 2003/04 and employing Co-integration and Error Correction Models as well as the standard Granger Causality analysis we investigate the Bi-variate and Tri-variate causal relationships. The Co-integration analysis indicates, in general, the long run relationship among money, income, and prices. The Error Correction and Granger Causality framework suggest 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. Regarding the causal relationship between money and prices, the causality framework provides the evidence of bi-variate causality indicating that monetary expansion increases, and is also increased by inflation in Pakistan. However, Money supply seems to be the leader in this case.

Keywords: Money; Income; Prices; Causality (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2006-04
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Published in South Asia Economic Journal 1.7(2006): pp. 55-65

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:4892

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