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Money, prices and causality: monetarist versus structuralist explanations using pooled country evidence

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  • Victor Pinga
  • Gerald Nelson

Abstract

The direction of causality between changes in money supply and aggregate prices has long been a matter of controversy between structuralists and monetarists. This paper addresses deficiencies in this literature in three ways. First, a large sample of countries with alternate measures of money and price variables is used to evaluate the evidence on money, inflation and causality. Second, combined data are tested for causality, with the combinations based on variables suggested by the literature - level of per capita income, magnitude of inflation, degree of financial market development, and independence of the central bank. Finally, because the choice of lag length is often arbitrary, results are generated with varying lags and consistency across different lag periods looked for. Two presentation methods are developed - categorical and graphical. Evidence of structural inflation, was found only in Chile and Sri Lanka. Evidence of money supply exogeneity on the other hand was found to be strongest in Kuwait, Paraguay and the USA. Most countries exhibited mixed evidence of money supply endogeneity, with bidirectional causation between money supply and aggregate prices a common result.

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  • Victor Pinga & Gerald Nelson, 2001. "Money, prices and causality: monetarist versus structuralist explanations using pooled country evidence," Applied Economics, Taylor & Francis Journals, vol. 33(10), pages 1271-1281.
    • Handle: RePEc:taf:applec:v:33:y:2001:i:10:p:1271-1281
    DOI: 10.1080/00036840122078
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    Cited by:

    1. Yulia Vymyatnina, 2013. "Money Supply and Monetary Policy in Russia: A Post-Keynesian Approach Revisited," EUSP Department of Economics Working Paper Series Ec-04/13, European University at St. Petersburg, Department of Economics.
    2. Tuck Cheong Tang, 2008. "Money demand function for Southeast Asian countries," Journal of Economic Studies, Emerald Group Publishing, vol. 34(6), pages 476-496, January.
    3. Tang, Tuck Cheong, 2004. "Demand for broad money and expenditure components in Japan: an empirical study," Japan and the World Economy, Elsevier, vol. 16(4), pages 487-502, December.
    4. Papavangjeli, Meri, 2022. "Combining monetary, fiscal and structural approaches to model Albanian inflation," MPRA Paper 116917, University Library of Munich, Germany.
    5. Tang, Chor Foon, 2008. "Is inflation always a monetary phenomenon in Malaysia?," MPRA Paper 19778, University Library of Munich, Germany.
    6. Chor Foon Tang & Ilhan Ozturk, 2017. "Can Inflation be Claimed as a Monetary Phenomenon? The Malaysian Experience," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 453-460.
    7. Tuck Cheong Tang, 2007. "Money demand function for Southeast Asian countries," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 34(6), pages 476-496, November.

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