Scandinavian Working Papers in Economics

Working Papers,
Örebro University, School of Business

No 2004:1: Evidence on the Direction of Causation in the Money-Income Relationship: An Alternative Methodology

Hatemi-J Abdulnasser and Irandoust Manuchehr
Additional contact information
Hatemi-J Abdulnasser: Department of Economics, University of Skövde,, Postal: Department of Economics, University of Skövde, P.O. Box 408, SE-541, 28, Skövde, Sweden., Sweden
Irandoust Manuchehr: Department of Business, Economics, Statistics and Informatics, Postal: Örebro University, Department of Business, Economics, Statistics and Informatics, SE - 701 82 ÖREBRO, Sweden

Abstract: In this paper, the evidence reported in the large literature on testing for money-output Granger causality is revisited by applying an alternative methodology based on the leveraged bootstrapped simulation techniques, using data from Denmark and Sweden. Based on the estimation results, the authors find unidirectional causality from money to output for the sample

countries. The established unidirectional causality between money and output supports monetary business-cycle models and reveals two policy implications. First, active monetary policy has a role in reducing the severity of the business cycles and unobservable shocks. Second, in looking for the sources of output fluctuations, money is a major factor.

Keywords: money supply; output growth; Granger causality; leveraged bootstrapped simulation.

JEL-codes: C32; E51

25 pages, September 29, 2004

Price: 120

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