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Revisiting money-output causality from a Bayesian logistic smooth transition VECM perspective

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  • Deborah Gefang

Abstract

This paper proposes a Baysian approach to explore money-output causality within a logistic smooth transition VECM framework. Our empirical results provide substantial evidence that the postwar US money-output relationship is nonlinear, with regime changes mainly governed by the lagged inflation rates. More importantly, we obtain strong support for long-run non-causality and nonlinear Grangercausality from money to output. Furthermore, our impulse response analysis reveals that a shock to money appears to have negative accumulative impact on real output over the next fifty years, which calls for more caution when using money as a policy instrument.

Suggested Citation

  • Deborah Gefang, 2008. "Revisiting money-output causality from a Bayesian logistic smooth transition VECM perspective," Discussion Papers in Economics 08/5, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:08/5
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    File URL: https://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp08-5.pdf
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