IDEAS home Printed from https://ideas.repec.org/a/eut/journl/v18y2014i3p115.html
   My bibliography  Save this article

Survey of Money- Output Causality: Case Study of Iran, Based on Vector Error Correction Model (VECM)

Author

Listed:
  • Monireh Motamedi

    (Department of Economics, Monetary and Banking Research Institute (MBRI), Tehran, Iran.)

  • Ghazaleh Mohammadian

    (School of Computer Science, Engineering and Mathematics, Flinders University, Australia.)

Abstract

This study investigated the dynamic relationship between money, prices and output in a multivariate structure of casualty analysis in Iran for the two period of 1969 to 2012 (entire period) and 1989 to 2012 (sub-period). This statistical framework has been projected for situations where causal links may have changed over the sample period. Results of a three-variable Vector Error Correction Model (VECM) analysis were indicative for existence of one co-integrated relationship between money supply, price and real output at both periods. Although there was a long run relationship between money, output and prices for both periods, direction of casualty has changed for sub-period. Also error correction terms showed that short run adjustment toward long run equilibrium was faster and stranger at sub-period, when Central Bank of Iran (CBI) adopted expansionary monetary policy and consequently rapid increase in liquidity. Finally money- output causality was not confirmed in this method and presence of correlation (not causality) between variables may just resulted from some other variables in economy as source of changes.

Suggested Citation

  • Monireh Motamedi & Ghazaleh Mohammadian, 2014. "Survey of Money- Output Causality: Case Study of Iran, Based on Vector Error Correction Model (VECM)," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 18(3), pages 115-132, Autumn.
    • Handle: RePEc:eut:journl:v:18:y:2014:i:3:p:115
    as

    Download full text from publisher

    File URL: ftp://80.66.179.253/eut/journl/20143-7.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Bernd Hayo, 1999. "Money-output Granger causality revisited: an empirical analysis of EU countries," Applied Economics, Taylor & Francis Journals, vol. 31(11), pages 1489-1501.
    2. Pesaran, M. H., 1998. "Economic Trends and Macroeconomic Policies in Post-revolutionary Iran," Cambridge Working Papers in Economics 9818, Faculty of Economics, University of Cambridge.
    3. Scott Freeman, 1992. "Money and output: correlation or causality?," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q III, pages 1-7.
    4. Bonato Leo, 2008. "Money and Inflation in the Islamic Republic of Iran," Review of Middle East Economics and Finance, De Gruyter, vol. 4(1), pages 41-58, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yannis Panagopoulos & Aristotelis Spiliotis, 2006. "Testing Money Supply Endogeneity: The Case of Greece (1975-1998)," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 85-102.
    2. Augustine C. Arize & Ioannis N. Kallianotis & Scott Liu & John Malindretos & Alex Panayides, 2014. "National Debt and Its Effects on Several Other Variables: An Econometric Study of the United States," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 5(4), pages 98-113, October.
    3. Ryan S. Mattson & Philippe de Peretti, 2014. "Investigating the Role of Real Divisia Money in Persistence-Robust Econometric Models," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00984827, HAL.
    4. Asongu Simplice, 2013. "Does Money Matter in Africa? New Empirics on Long- and Short-run Effects of Monetary Policy on Output and Prices," Working Papers of the African Governance and Development Institute. 13/005, African Governance and Development Institute..
    5. Hesham Alogeel & Maher Hasan, 2008. "Understanding the Inflationary Process in the GCC Region: The Case of Saudi Arabia and Kuwait," IMF Working Papers 2008/193, International Monetary Fund.
    6. Dario Laudati & M. Hashem Pesaran, 2023. "Identifying the effects of sanctions on the Iranian economy using newspaper coverage," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(3), pages 271-294, April.
    7. International Monetary Fund, 2013. "Algeria: Selected Issues Paper," IMF Staff Country Reports 2013/048, International Monetary Fund.
    8. Carl Mela & Praveen Kopalle, 2002. "The impact of collinearity on regression analysis: the asymmetric effect of negative and positive correlations," Applied Economics, Taylor & Francis Journals, vol. 34(6), pages 667-677.
    9. Ben Ali Mohamed Sami & Sassi Seifallah, 2016. "The corruption-inflation nexus: evidence from developed and developing countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 16(1), pages 125-144, January.
    10. Merve Karacaer-Ulusoy & Ayhan Kapusuzoglu, 2017. "The Dynamics of Financial and Macroeconomic Determinants in Natural Gas and Crude Oil Markets: Evidence from Organization for Economic Cooperation and Development/Gulf Cooperation Council/Organization," International Journal of Energy Economics and Policy, Econjournals, vol. 7(3), pages 167-187.
    11. Masoud Moghaddam, 2010. "Co-integrated money in the production function-evidence and implications," Applied Economics, Taylor & Francis Journals, vol. 42(8), pages 957-963.
    12. repec:ebl:ecbull:v:3:y:2008:i:61:p:1-14 is not listed on IDEAS
    13. Magda Kandil & Hanan Morsy, 2011. "Determinants of Inflation in GCC," Middle East Development Journal, Taylor & Francis Journals, vol. 3(2), pages 141-158, January.
    14. Matteo Farn'e & Angela Montanari, 2018. "A bootstrap test to detect prominent Granger-causalities across frequencies," Papers 1803.00374, arXiv.org, revised Oct 2018.
    15. Mohammadreza Mahmoudi, 2021. "Identifying the Main Factors of Iran's Economic Growth using Growth Accounting Framework," Papers 2109.02787, arXiv.org, revised Oct 2021.
    16. Ahmad, Najid & Du, Liangsheng, 2017. "Effects of energy production and CO2 emissions on economic growth in Iran: ARDL approach," Energy, Elsevier, vol. 123(C), pages 521-537.
    17. Tae-Hwy Lee & Weiping Yang, 2012. "Money–Income Granger-Causality in Quantiles," Advances in Econometrics, in: 30th Anniversary Edition, pages 385-409, Emerald Group Publishing Limited.
    18. Simplice Asongu, 2014. "How Would Monetary Policy Matter In The Proposed African Monetary Unions? Evidence From Output And Prices," The African Finance Journal, Africagrowth Institute, vol. 16(2), pages 34-63.
    19. Maganya, Mnaku H. & Ndanshau, Michael O. A., 2020. "Money and Output in Tanzania: A Test for Causality," African Journal of Economic Review, African Journal of Economic Review, vol. 8(2), July.
    20. Hamidreza Ghorbani Dastgerdi, 2020. "Inflation Theories and Inflation Persistence in Iran," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 23(2), pages 1-20, November.
    21. R. W. Hafer & Ali M. Kutan, 2002. "Detrending and the Money‐Output Link: International Evidence," Southern Economic Journal, John Wiley & Sons, vol. 69(1), pages 159-174, July.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eut:journl:v:18:y:2014:i:3:p:115. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: [z.rahimalipour] (email available below). General contact details of provider: https://edirc.repec.org/data/fecutir.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.