The Relationship Among Output, Money and Prices in Jordan

Walid M. Shawagfeh

Abstract


This study presents the relationship between money supply, price level, and real output for Jordan, using the co-integration methodology. Several methods of estimation and testing were used: single equation co-integrated regressions (FMOLS, CCR, DOLS), Vector Error Correction Model (VECM), in addition to the traditional Granger causality test.
The results show that broad money supply, price and real GDP are co-integrated. Single equation estimation and testing suggests a strong long run impact of money on real GDP. Traditional Granger causality test, also, suggests a unidirectional causality that runs from money to real GDP Applying VECM estimation concludes that money influence RGDP in long run, however, results indicate no impact in the short run. Finally, the long run price impact on output is not supported (except for DOLS method) by the different testing methods, however, the short run price changes does affect real output negatively.

Keywords


Jordan, Cointegrated Regression, Granger Causality, FMOLS, CCR, DOLS, VECM

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