Investigating Long-run Relationship between Money, Income and Price for Bangladesh: Application of Econometrics and Cross Spectra Methods

Abstract

This study examines the long-run causation between the three major macroeconomic variables namely real GDP, money supply and price level in the Bangladesh context.  The results obtained by applying time series econometric techniques reveal that unidirectional causation exists between real GDP and prices. The study also suggests that causation runs from money supply to prices but price level does not causes money supply. However, co-integration analysis ascertains long run relationship between these three variables. Moreover, in order to decompose Granger causality  between real GDP, money supply and  prices in the frequency-domain, Lemmens et al. (2008) method of cross spectra analysis  has been used which  imply that money supply granger causes real GDP over the short-run, but  in the long run, money supply Granger causes prices, not real GDP.

Journal of Science Foundation, January 2016;14(1):17-25