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The Intertemporal Relationship between Money and Prices: Evidence for Argentina

Author

Listed:
  • Florencia Gabrielli
  • George McCandless

Abstract

In this paper, we study the statistical relationship between money and prices in Argentina during the last quarter of the 20th century. We first look at the unit root characteristics of the series which suggest dividing the whole sample into two sub-samples: 1976 to 1989 and 1991 to 2001, as these sub-samples represent different exchange rate regimes. We then apply a filter similar to that of Lucas (1980) and find that correlations between changes in money and prices are highest when 12 month moving averages are used. In the early period, the correlation is almost one to one, while for the later period, the correlation is somewhat less and the relationship implies much smaller changes in prices for a given change in the money stock. Taking lags and leads in the moving averages of prices, we find very different temporal results for the two periods: changes in prices precede changes in money for the earlier period while changes in money precede changes in prices for the latter. These results are confirmed by Granger causality tests and VARs models. The main results of this paper are quite different from those found for developed countries. The reaction times we get are much shorter and the direction of causality (Granger) is also different.

Suggested Citation

  • Florencia Gabrielli & George McCandless, 2004. "The Intertemporal Relationship between Money and Prices: Evidence for Argentina," Econometric Society 2004 Latin American Meetings 30, Econometric Society.
    • Handle: RePEc:ecm:latm04:30
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    Cited by:

    1. Laura Inés D’Amato & María Lorena Garegnani, 2013. "¿Cuán persistente es la inflación en Argentina?: regímenes inflacionarios y dinámica de precios en los últimos 50 años," Investigación Conjunta-Joint Research, in: Laura Inés D'Amato & Enrique López Enciso & María Teresa Ramírez Giraldo (ed.), Dinámica inflacionaria, persistencia y formación de precios y salarios, edition 1, chapter 4, pages 91-115, Centro de Estudios Monetarios Latinoamericanos, CEMLA.

    More about this item

    Keywords

    Quantitative theory; inflation; money; prices; empirical evidence; structural unit-root testing; VARs.;
    All these keywords.

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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