On the Temporal Causal Relationship Between Macroeconomic Variables: Empirical Evidence From India

Title

On the Temporal Causal Relationship Between Macroeconomic Variables: Empirical Evidence From India

Creator

Palamalai S.; Mariappan K.; Devakumar C.

Description

The present study examines the dynamic interactions among macroeconomic variables such as real output, prices, money supply, interest rate (IR), and exchange rate (EXR) in India during the pre-economic crisis and economic crisis periods, using the autoregressive distributed lag (ARDL) bounds test for cointegration, Johansen and Juselius multivariate cointegration test, Granger causality/Block exogeneity Wald test based on Vector Error Correction Model, variance decomposition analysis and impulse response functions. The empirical results reveal a stronger long-run bilateral relationship between real output, price level, IR, and EXR during the pre-crisis sample period. Moreover, the empirical results confirm a unidirectional short-run causality running from price level to EXR, IR to price level, and real output to money supply during the pre-crisis period. Also, it is evident from the test results that there exist short-run bidirectional relationships running between real output and EXR, price level and IR, and IR and EXR in the pre-crisis era, respectively. Most importantly, long-run bidirectional causality is found between real output, EXR, and IR during the economic crisis period. And the study results indicate short-run bidirectional causality between money supply and EXR, IR and price level, and IR and output in India during the crisis era. Also, a short-run unidirectional causality runs from prices to real output in the crisis period. The Author(s) 2014.

Source

SAGE Open, Vol-4, No. 1

Date

2014-01-01

Publisher

SAGE Publications Inc.

Subject

causality; cointegration; impulse response functions; macroeconomic variables; variance decomposition analysis

Coverage

Palamalai S., Christ University, Karnataka, Bangalore, India; Mariappan K., M.G.R. College (Arts & Science), Tamil Nadu, Hosur, India; Devakumar C., Christ University, Karnataka, Bangalore, India

Rights

All Open Access; Gold Open Access

Relation

ISSN: 21582440

Format

Online

Language

English

Type

Article

Identifier

https://doi.org/10.1177/2158244014525419

https://www.scopus.com/inward/record.uri?eid=2-s2.0-84990817604&doi=10.1177%2f2158244014525419&partnerID=40&md5=fc4b5e43c783136848f9f698a0ba5de1