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Revisiting the Temporal Causality between Money and Income

Rangan Gupta ()

No 200501, Working Papers from University of Pretoria, Department of Economics

Abstract: The paper revisits the ever enduring question of whether â"money matters". The study uses the Sims' (1972) methodology over the quarterly time-series data spanning fifty years post World War II for the U.S. economy. The results indicate bi-directional causality between money and income. When we apply Granger Causality tests we find that income Granger causes money. The causality disappears when we add interest rates. Next when we use an Error Correction Model the results of the traditional Granger causality tests hold true in the bivariate system. But, we observe bi-causality under longer lag specifications, and when extra variables are added.

Keywords: Causality; Error Correction Models (search for similar items in EconPapers)
JEL-codes: C2 C22 E52 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2005-08
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