TESTING THE CAUSAL RELATIONSHIP BETWEEN DOMESTIC CREDIT AND RESERVE COMPONENTS OF A COUNTRY'S MONETARY BASE

Edgar Feige and James M. Johannes
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James M. Johannes: University of Wisconsin-Madison

International Finance from University Library of Munich, Germany

Abstract: An important factor that helps distinquish between alternative balance of payments theories is the assumed causal relationship between the domestic credit and reserve components of a country's monetary base. This paper reports test results of this causal relationship in Austrailia, Belgium, France, Germany, Norway and Sweden. Three causal detection methods are used: the haugh test, the granger test and the Sims test. Two conclusions are drawn. First, the causal relationship does not run unidirectionally from domestic credit to reserves as the Monetary Approach to the Balance of Paymewnts and many tests of that approach assume. Second, the results are quite robust across alternative causality tests.

Keywords: Causality tests; Monetary approach to balance of payments; domestic credit; reserves; monetary base (search for similar items in EconPapers)
JEL-codes: E50 F31 F47 G15 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2004-04-29
New Economics Papers: this item is included in nep-mon
Note: Type of Document - pdf; pages: 22
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https://econwpa.ub.uni-muenchen.de/econ-wp/if/papers/0404/0404016.pdf (application/pdf)

Related works:
Journal Article: Testing the causal relationship between the domestic credit and reserve components of a country's monetary base (1981)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpif:0404016

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