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Modeling the dynamics of money income from a vector correction model

Author

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  • Mohammad S. Hasan

    (King Fahd University of Petroleum and Minerals, Saudi Arabia)

Abstract

The purpose of this paper is to re-examine the empirical relationship among alternative monetary aggregates (M1 and M2), output, prices, interest rates and exchange rates in India. The results of a five-variate vector error correction model are indicative of a bi-directional causality between each of the monetary aggregates and prices. Our findings of a feedback relationship make each of the monetary aggregates a poor intermediate target and informational variable. Moreover, contrary to most recent research in this area, the results are supportive of the real business-cycle view and the Keynesian monetary accommodation hypothesis rather than the monetarists’ theory of the business cycle.

Suggested Citation

  • Mohammad S. Hasan, 2010. "Modeling the dynamics of money income from a vector correction model," Journal of Developing Areas, Tennessee State University, College of Business, vol. 43(2), pages 233-253, January-M.
    • Handle: RePEc:jda:journl:vol.43:year:2010:issue2:pp:233-253
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    More about this item

    Keywords

    Money-Income Relationship; Real Business Cycle Theory; Keynesian Monetary Accommodation Hypothesis; Vector Error correction Model; Variance Decompositions;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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