Reinvestigating the Effect of Money on Output for Taiwan with Additional Robustness

DOI: 10.4236/tel.2014.45046   PDF   HTML   XML   3,262 Downloads   4,036 Views   Citations


This paper investigates the effect of money on output in Taiwan with more robustness concerns. First, we employ different lag-length chosen criteria, such as AIC, BIC, FPE, SBC, SIC, and HJC for the lag length chosen for Granger causality. Second, we use the symmetric and asymmetric lag length models for further investigation. Third, we employ the simulated data and real data for comparison. Fourth, we further compare the results derived from short-term data with those derived from long-term period data. After surveying the relevant literature, we find that these concerns seem rarely concerned in the relevant studies. In addition, our empirical results reveal that the money indeed affects output even after taking the concerns mentioned above for robustness, implying that policymakers should adopt monetary policies with care in Taiwan.

Share and Cite:

Wu, M. and Ni, Y. (2014) Reinvestigating the Effect of Money on Output for Taiwan with Additional Robustness. Theoretical Economics Letters, 4, 350-361. doi: 10.4236/tel.2014.45046.

Conflicts of Interest

The authors declare no conflicts of interest.


[1] Thornton, D.L. and Batten, D.S. (1985) Lag-Length Selection and Tests of Granger Causality between Money and In-come. Journal of Money, Credit, and Banking, 17, 164-178.
[2] Kang, H. (1985) The Effects of Detrending in Granger Causality Tests. Journal of Business and Economic Statistics, 3, 344-349.
[3] Hsiao, C. (1979) Causality Tests in Econometrics. Journal of Economic Dynamics and Control, 1, 321-346.
[4] Ozcicek, O. and McMillin, D.W. (1999) Lag Length Selection in Vector Autoregressive Models: Symmetric and Asymmetric Lags. Applied Economics, 31, 517-524.
[5] Keating, J.W. (1995) Vector Autoregressive Models with Asymmetric Lag Structure. Working Paper, Washington University, Washington DC.
[6] Hatemi-J, A. (2003) A New Method to Choose Optimal Lag Order in Stable and Unstable VAR Models. Applied Eco-nomics Letters, 10, 135-137.
[7] Hacker, R.S. and Hatemi-J, A. (2008) Optimal Lag-Length Choice in Stable and Unstable VAR Models under Situations of Homoscedasticity and ARCH. Journal of Applied Statistics, 35, 601-615.
[8] Hsiao, C. (1981) Autoregressive Modeling and Money-Income Causality Detection. Journal of Monetary Economics, 7, 85-106.
[9] Jones, J.D. (1989) A Comparison of Lag-Length Selection Techniques in Tests of Granger Causality between Money Growth and Inflation, Evidence for the US, 1959-86. Applied Economics, 21, 809-822.
[10] Kang, H. (1989) The Optimal Lag Selection and Transfer Function Analysis in Granger Causality Tests. Journal of Economic Dynamics and Control, 13, 151-169.
[11] Hall, A. (1994) Testing for a Unit Root in Time Series with Pretest Data-Based Model Selection. Journal of Business and Economic Statistics, 12, 461-470.
[12] Gredenhoff, M. and Karlsson, S. (1999) Lag-Length Selection in VAR-Models Using Equal and Unequal Lag-Length Procedures. Computational Statistics, 14, 171-187.
[13] Rissanen, J. (1978) Modeling by Shortest Data Description. Automatica, 14, 465-471.
[14] Shibata, R. (1981) Asymptotically Efficient Selection of the Order the Model for Estimating Parameters of a Linear Process. Annals of Statistics, 8, 147-164.
[15] Cheung, Y.-W. and Fujii, E. (2001) A Note on the Power of Money-Output Causality Tests. Oxford Bulletin of Eco-nomics and Statistics, 63, 247-261.
[16] Hafer, R.W. and Kutan, A.M. (2002) Detrending and the Money-Output Link: International Evidence. Southern Economic Journal, 69, 159-174.
[17] Moroney, J.R. (2002) Money Growth, Output Growth, and Inflation: Estimation of a Modern Quantity Theory. Southern Economic Journal, 69, 298-413.
[18] Das, S. (2003) Modelling Money, Price and Output in India: A Vector Autoregressive and Moving Average (VARMA) Approach. Applied Economics, 35, 1219-1225.
[19] Berger, H. and Osterholm, P. (2009) Does Money Still Matter for US Output? Economics Letters, 102, 143-146.
[20] Caraiani, P. (2012) Money and Output: New Evidence Based on Wavelet Coherence. Economics Letters, 116, 547-550.
[21] Gefang, D. (2012) Money-Output Causality Revisited—A Bayesian Logistic Smooth Transition VECM Perspective. Oxford Bulletin of Economics and Statistics, 74, 131-151.
[22] Haug, A.A. and Dewald, W.G. (2012) Money, Output, and Inflation in the Longer Term: Major Industrial Countries, 1880-2001. Economic Inquiry, 50, 773-787.
[23] Isik, N. and Acar, M. (2006) Does the Effectiveness of Monetary Policy on Output Depend on Openness? Journal of Economic & Social Research, 8, 1-18.
[24] Mojon, B. (2007) Monetary Policy, Output Composition and the Great Moderation. Working Paper Series: WP-07-07, Federal Reserve Bank of Chicago, Chicago.
[25] Luporini, V. (2008) The Monetary Transmission Mechanism in Brazil: Evidence from a VAR Analysis. Estudos Economicos, 38, 7-30.
[26] Boivin, J. and Giannoni, M. (2002) Assessing Changes in the Monetary Transmission Mechanism: A VAR Approach. Economic Policy Review, 8, 97-111.
[27] Ireland, P.N. (2006) The Monetary Transmission Mechanism. Research Review, 5, 9-10.
[28] Chang, C.H., Chan, K.C. and Fung, H.G. (2009) Effect of Money Supply on Real Output and Price in China. China and World Economy, 17, 35-44.
[29] Serletis, A. and Rahman, S. (2009) The Output Effects of Money Growth Uncertainty: Evidence from a Multivariate GARCH-in-Mean VAR. Open Economies Review, 20, 607-630.
[30] Basistha, A. (2002) Essays on Monetary Policy and the Output Gap in the US. University of Washington, Washington DC.
[31] Pedersen, T.M. and Elmer, A.M. (2003) International Evidence on the Connection between Business Cycle and Economic Growth. Journal of Macroeconomics, 25, 255-275.
[32] Gawin, W.T. and Kydland, F.E. (1999) Endogenous Money Supply and Business Cycle. Review of Economic Dynamics, 2, 347-369.
[33] Booth, J.R. and Booth, L.C. (2003) Is Presidential Cycle in Security Returns Merely a Reflection of Business Condition. Review of Financial Economics, 12, 131-159.
[34] Korenok, O. and Radchenko, S.I. (2004) Monetary Policy Effect on the Business Cycle Fluctuations: Output vs. Index Measures of the Cycle. EconWPA, Series Number 0409015.
[35] Fung, B.S. and Kasumovich, M. (1998) Monetary Shocks in the G-6 Countries: Is There a Puzzle? Journal of Monetary Economics, 42, 575-592.
[36] Akaike, H. (1973) Information Theory and an Extension of the Maximum Likelihood Principle. In: Petrov, B.N. and Csaki, F., Eds., 2nd International Symposium on Information Theory, Armenia, 2-8 September 1971, 267-281.
[37] Akaike, H. (1974) A New Look at the Statistical Model Identification. IEEE Transactions on Automatic Control, 19, 716-723.
[38] Akaike, H. (1969) Fitting Autoregressive Models for Prediction. Annals of the Institute of Statistical Mathematics, 21, 243-247.
[39] Akaike, H. (1970) Statistical Predictor Identification. Annals of the Institute of Statistical Mathematics, 22, 203-217.
[40] Schwarz, G. (1978) Estimating the Dimension of a Model. Annals of Statistics, 6, 461-464.
[41] Hannan, E.J. and Quinn, B.J. (1978) The Determination of the Lag Length of an Autoregression. Journal of Royal Statistical Society, 41, 190-195.

comments powered by Disqus

Copyright © 2020 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.