Unit Root Analyses of the Causality Between Japanese Money and Income

Unit root techniques and cointegration analysis have develop ed considerably in the last ten years. At the same time, the nonstationary test for Granger causality has been developed. We shed some new light on Japanese money supply and income causality by using nonstationary techniques. We specify univariate ARMA models of money, income, GNP deflator and rate of interest, initially by using the Dickey and Fuller (DF) or the augmented DF (ADF) tests. Two diagnostic tests are applied to each selected ARMA regression. One is the residual DF test, and the other is the moving average (MA) unit root test of residuals . After selecting the ARMA model, some causality tests are applied to the error correction model (ECM) of a vector autoregression (VAR) one of which is ordinary least squares (OLS) and another is the maximum likelihood (ML) method. The former requires only the standard F -test on the deleted variables in the ECM. The latter requires the Johansen's ML method in estimating cointegration. Causality is found to go from income to money supply but not the other way. Appendices include a simple implementation of the MA unit root test, a pedagogical proof of the Granger causality tests developed by Toda and Phillips (1993) and an interpretation of the test proposed by Toda and Yamamoto (1995).
JEL Classification Numbers: C32, E50     

A causal caveat in the Australian money/income relation

The nature of Australian causal relations between money and nominal income and money and real income is examined. Like other recent studies in the area causality is in the sense of Granger (1969). Unlike other studies, causality conclusions are based on both a within-and post-sample analysis. This is motivated by Granger's(1980) recent suggestions regarding causality detection. Monetary growth is found to lead both real and nominal income growth by six months. Surprisingly, the post-sample forecasting analysis suggests real income rather than nominal income as the more relevant causal variable as far as monetary growth is concerned. The identified lag here is fifteen months.     

我国货币需求的协整分析及其货币政策建议

本文运用协整以及弱外生和短期因果关系检验 ,对我国货币需求的长期稳定性进行实证 ,由此而产生的主要结论为 :我国货币需求的长期稳定性 (协整 )依赖于时间趋势 ,货币政策目标变量为M1,实际货币政策效应主要体现在促进经济增长。我国货币需求和利率是关于协整向量的弱外生变量。基于上述结论所提出的政策建议为 :当前的货币政策重点应转向于防范通胀     

The 1997 Asian Currency Crisis,Financial Linkages,and the Monetary Policy of Japan

The evidence is examined that excessively liberal monetary policy by the Bank of Japan, before and after the financial collapse of Japan in 1992, may have led other East Asian economies into “over‐borrowing” and speculative investments, prior to the currency crisis in 1997–98. The authors test for cointegration and Granger causality between Japanese money supply M1 and the domestic investment of eight East Asian economies and Australia. US and German money supplies are also used as a benchmark. There is strong evidence that there are long‐ and short‐run causal relationships between the Japanese money supply and the domestic investment of the Asian crisis‐inflicted economies prior to 1997.     

中国城市化与经济增长的动态计量分析

为探讨我国城市化与经济增长之间的相互作用和相互影响,文章依据1978~2004年的时序数据,利用协整检验、格兰杰因果检验、误差修正模型、脉冲响应及方差分解等方法,对城市化水平与经济增长的关系进行动态计量分析。结果发现,经济增长是城市化水平提高的格兰杰原因,经济增长对城市化产生较大的正向冲击效应,而城市化对经济增长的作用强度不大;城市化水平受人均GDP影响的效应逐步增强,受自身影响的效应不断减弱,而人均GDP受自身波动影响的效应不断上升,受城市化水平影响的强度逐步下降。对我国城市化与经济增长关系的深入认识,有利于各级政府在推动城市化和促进经济增长的过程中采取合理对策,避免走入误区。     

The J-curve dynamics of Turkey: an application of ARDL model

This article seeks an empirical evidence for the existence of the J-curve phenomenon both in the short-run and long-run for Turkey over the period 1980-2005. The bounds testing cointegration approach is employed to estimate the trade balance model. An augmented form of Granger causality analysis is implemented between trade balance, real effective exchange rates, foreign income and domestic income. The stability of the short-run as well as long-run coefficients in the trade balance model is tested too. The empirical results that the J-curve phenomenon is supported only in the short-run. Whilst causality tests reveal mix results, the parameter stability tests seem to be inconclusive.     

The empirical study on price discovery of cornstarch futures market in China

This article aims at exploring the performance of the price discovery function of cornstarch futures market in China. In order to test the stationarity of the cash and futures prices of cornstarch, the augmented Dickey–Fuller test is applied. Both prices are integrated of order one. Then, the Johansen cointegration test is conducted to test the cointegrating relationship between those two prices. Finally, the Granger causality test is performed to observe the direction of causality. The evidence shows that there is a long-run relationship between cash and futures prices and the futures price Granger causes cash price. As a whole, price discovery of cornstarch market in China is present although it is a newly emerged market.     

Temporal causality and the dynamics of democracy,emigration and real income in Fiji

This study is the first to explore temporal causality between democracy, emigration and real income in Fiji within a multivariate cointegration model. We find three long run relationships between democracy, emigration and real income. In the long run there is evidence that migration and democracy Granger cause real GDP in Fiji; real GDP and democracy Granger cause migration from Fiji and that real GDP and migration Granger cause democracy in Fiji. In the short run we find unidirectional Granger causality running from migration to real GDP and from democracy to real GDP, but neutrality between democracy and migration in the short run. We also extend the analysis to examine the degree of exogeneity of the variables beyond the sample period through considering the decomposition of variance and impulse response functions.     

Cointegration and detectable linear and nonlinear causality: analysis using the London Metal Exchange lead contract

This study applies linear and nonlinear Granger causality tests to examine the dynamic relation between London Metal Exchange (LME) cash prices and three possible predictors. The analysis uses matched quarterly inventory, UK Treasury bill interest rates, futures prices and cash prices for the commodity lead traded on the LME. The effects of cointegration on both linear and nonlinear Granger causality tests is also examined. When cointegration is not modelled, evidence is found of both linear and nonlinear causality between cash prices and analysed predictor variables. However, after controlling for cointegration, evidence of significant nonlinear causality is no longer found. These results contribute to the empirical literature on commodity price forecasting by highlighting the relationship between cointegration and detectable linear and nonlinear causality. The importance of interest rate and inventory as well as futures price in forecasting cash prices is also illustrated. Failure to detect significant nonlinearity after controlling for cointegration may also go some way to explaining the reason for the disappointing forecasting performances of many nonlinear models in the general finance literature. It may be that the variables are correct, but the functional form is overly complex and a standard VAR or VECM may often apply.     

Causal relationships among economic aggregates in China

Using China's macro data from 1952 to 1989, the stationarity and causality tests to two types of economic aggregates are applied. The first type relates to the conventional money, income and consumption relationship; and the other is associated with the interest rate, money and investment/income relationship as embodied in a financial repression model. Stationarity test results show that a different direction of causality exists when different measurement of price is used. A causal relationship between interest rate, money and investment/income is also found.     

Growth in a time of austerity: evidence from the UK

This paper uses an empirical approach to test the specific causal relationship between debt and growth in the UK, in the context of the debate surrounding the use of a policy known as austerity measures. This time series perspective makes use of more recent Granger causality and cointegration tests that allow for non‐stationarity in macroeconomic time series data in the presence of structural breaks. Controlling for exogenous shocks associated with the period around the financial crisis, we find no evidence of a causal relationship between economic growth and public debt for the UK.     

Stock prices and long-run demand for money: evidence from Malaysia

This paper investigates the money demand function for Malaysia in the 1971-1996 period using the multivariate cointegration and error correction model methodology. The results suggest that a stable long-run relationship exist between real M2, the interest rate differential, income and stock prices. Stock prices have a significant negative substitute effect on long-run as well as short-run broad-money demand (M2) and its omission can lead to serious misspecification in the money demand function. The analysis from the vector error correction model (VECM) and the Toda & Yamamoto (1995) causality tests find that money is endogenous and that there is at least a unidirectional relationship between stock prices and real M2. Stock prices Granger cause real M2 indirectly through income between interest rates and stock prices and stock prices and money stock. This paper comes to the conclusion that due to the endogeneity of money, M2 cannot be completely controlled by Malaysia's central bank. Therefore, in formulating future monetary policy, the response of money demand to stock prices should be considered.     

Tourism,trade and growth: the case of Cyprus

Although the relationship between international trade and economic growth has found a wide application area in the literature over the years, this can not be said about tourism and growth or trade and tourism. This study employs the bounds test for cointegration and Granger causality tests to investigate a long-run equilibrium relationship between tourism, trade and real income growth, and the direction of causality among themselves for Cyprus. Results reveal that tourism, trade and real income growth are cointegrated; thus, a long-run equilibrium relationship can be inferred between these three variables. On the other hand, Granger causality test results suggest that real income growth stimulates growth in international trade (both exports and imports) and international tourist arrivals to the island. Furthermore, growth in international trade (both exports and imports) also stimulates an increase in international tourist arrivals to Cyprus. And finally, real import growth stimulate growth in real exports in the case of Cyprus.     

The savings-growth nexus for the Malaysian economy: a view through rolling sub-samples

The purpose of this study is to re-investigate the savings-growth nexus for the Malaysian economy using bounds testing approach to cointegration and Toda and Yamamoto (1995) and Dolado and Lütkepohl (1996) – TYDL Granger causality test. This study covered the sample period from 1971:Q1 to 2008:Q4. The cointegration results suggest that the variables are moving together in the long run and the TYDL Granger causality results indicate that the relationship between savings and economic growth is bilateral. In addition, the rolling sub-samples TYDL Granger causality test exhibited a relatively stable causal relationship running from savings to economic growth in Malaysia particularly before the onset of Asian Financial Crisis in 1997/1998.     

Intersectoral wage linkages: the case of Sweden

The purpose of this study is to investigate whether wage-setting in certain sectors of the Swedish economy affects wage-setting in other sectors. The theoretical background is the Scandinavian model of inflation, which states that wage-setting in the sectors exposed to international competition lead wage-setting in the sheltered sectors of the economy. The Johansen maximum likelihood cointegration approach is applied to quarterly data on Swedish sector wages for the period 1980:1–2002:2. Different vector error correction (VEC) models are created, based on assumptions as to which sectors are exposed to international competition and which are not. Granger causality tests are then carried out in the different restricted/unrestricted VEC models to test for sector wage leadership. The Granger causality tests provide strong evidence for the presence of intersectoral wage causality, but no evidence of a wage-leading role for the internationally exposed manufacturing sector.      

A Test for Granger-sausality in a multivariate ARMA model

The objective of this paper is to present a parametric test of Granger causality in a multivariate ARMA model. We derive the necessary and sufficient condition for Granger causality. We then relate our method to previous studies by examining Sims' nominal income and money data.     

Financial development and poverty in developing countries: a causal analysis

This article empirically examines the possible causal links between financial development and poverty in developing countries. To this end, we apply a modified form of traditional Granger causality tests to suit the short times series that are available. We conclude that the evidence supports the hypothesis that in the period of the 1970s–1980s financial development, measured by liquid assets of the financial system as a share of GDP or by money and quasi money as a percentage of GDP, leads to the reduction of moderate poverty. These results do not appear for the period of the 1980s–1990s or when financial development is measured by the ratio of the value of credits granted by financial intermediaries to the private sector to GDP, whereas they seem to be strengthened by using summary measures of financial development. Likewise, our analysis does not show any evidence of Granger causality from poverty to financial development.     

财政支农支出与农民收入增长关系研究

文章利用1985-2009年我国财政支农支出与农民收入相关数据,对我国财政支农支出与农民收入增长关系进行协整分析及Granger因果关系检验,得出两者存在长期均衡关系,基于此,提出了增加农民收入、促进经济发展的相关对策建议。     

宏观调控政策的国际互动及效应

通过运用格兰杰二元因果关系检验和协整检验等方法对多国的货币市场利率、货币供给量、政府净债务和政府支出等指标的增长率变动进行分析,可以证实国际间的货币政策和财政政策调控存在显著的互动关系,并且通过分析这些指标与各国经济总量GDP的互动关系,可以证实存在着国际间宏观经济互动调控的经济福利效应,它通过一些宏观经济调控政策的国际互动机制得以实现。     

Estimating money demand functions for South Asian countries

In this paper, we estimate a money demand function for a panel of five South Asian countries. We find that the money demand and its determinants, namely real income, real exchange rate and short-term domestic and foreign interest rates are cointegrated both for individual countries as well as for the panel, and panel long-run elasticities provide robust evidence of statistically significant relationships between money demand and its determinants. Our test for panel Granger causality suggests short-run causality running from all variables, except foreign interest rate, to money demand, and we find evidence that except for Nepal money demand functions are stable.