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Productivity, Inflation, And Investment: An Analysis Of Causality

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  • José Antonio Núñez
  • José Luis de la Cruz

Abstract

This paper elaborates a Vector Error Correction (VEC) in order to determine the causality between inflation and productivity, and between the productivity and investment in Mexico. A VEC allows a causality analysis among cointegrated variables with the same integration order [Hall and Milne, 1994]. This work incorporates the test of constancy in the cointegration rank developed by Quintos (1997). The results show a consistent and bidirectional causality between inflation and productivity. Furthermore, these results denote that some investment components (mainly machinery and equipment imports, and construction) have a strong link with productivity.

Suggested Citation

  • José Antonio Núñez & José Luis de la Cruz, 2004. "Productivity, Inflation, And Investment: An Analysis Of Causality," Econometric Society 2004 Latin American Meetings 154, Econometric Society.
    • Handle: RePEc:ecm:latm04:154
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    References listed on IDEAS

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    1. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    2. Quintos, Carmela E & Phillips, Peter C B, 1993. "Parameter Constancy in Cointegrating Regressions," Empirical Economics, Springer, vol. 18(4), pages 675-706.
    3. Clark, Peter K, 1982. "Inflation and the Productivity Decline," American Economic Review, American Economic Association, vol. 72(2), pages 149-154, May.
    4. Xiaohui Liu & Peter Burridge & P. J. N. Sinclair, 2002. "Relationships between economic growth, foreign direct investment and trade: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 34(11), pages 1433-1440.
    5. Hall, Stephen G & Milne, Alistair, 1994. "The Relevance of P-Star Analysis to UK Monetary Policy," Economic Journal, Royal Economic Society, vol. 104(424), pages 597-604, May.
    6. Xiaming Liu & Haiyan Song & Peter Romilly, 1997. "An empirical investigation of the causal relationship between openness and economic growth in China," Applied Economics, Taylor & Francis Journals, vol. 29(12), pages 1679-1686.
    7. Quintos, Carmela E., 1998. "Stability tests in error correction models," Journal of Econometrics, Elsevier, vol. 82(2), pages 289-315, February.
    8. Yash P. Mehra, 1993. "Unit labor costs and the price level," Economic Quarterly, Federal Reserve Bank of Richmond, issue Fall, pages 35-52.
    9. Evangelia Papapetrou, 2001. "Bivariate and multivariate tests of the inflation-productivity Granger-temporal causal relationship: evidence from Greece," Journal of Economic Studies, Emerald Group Publishing, vol. 28(3), pages 213-226, September.
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    More about this item

    Keywords

    causality; constancy of rank;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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