Money, Income and Prices in Pakistan: A Bi-variat and Tri-varate Causility

Abbas, Kalbe and Fazal, Husain (2006): Money, Income and Prices in Pakistan: A Bi-variat and Tri-varate Causility. Published in: South Asia Economic Journal , Vol. 7, No. 1 (March 2006): pp. 55-65.

Abstract

This paper re-examines the causal relationship between money and income and between money and prices in Pakistan. Using an annual data set for Fiscal Years 1959/60 to 2003/04 and employing Co-integration and Error Correction Models as well as the standard Granger Causality analysis we investigate the Bi-variate and Tri-variate causal relationships. The Co-integration analysis indicates, in general, the long run relationship among money, income, and prices. The Error Correction and Granger Causality framework suggest a one way causation from income to money in the long run implying that probably real factors rather than money supply has played a major role in increasing Pakistan’s national income. Regarding the causal relationship between money and prices, the causality framework provides the evidence of bi-variate causality indicating that monetary expansion increases, and is also increased by inflation in Pakistan. However, Money supply seems to be the leader in this case.

• Item Type: MPRA Paper
• Institution: Pakistan Institute of Development Economics, Islamabad
• Language: English
• Keywords: Money; Income; Prices; Causality
• Subjects: E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy