Home Money supply and inflation dynamics in the Asia-Pacific economies: a time-frequency approach
Article
Licensed
Unlicensed Requires Authentication

Money supply and inflation dynamics in the Asia-Pacific economies: a time-frequency approach

  • Stelios Bekiros EMAIL logo , Ahmed T. Muzaffar , Gazi S. Uddin and Javier Vidal-García
Published/Copyright: April 5, 2017

Abstract:

We examine the relationship between money supply growth and inflation in 3 Asian Economies which are India, Malaysia and Japan using a time-frequency approach. The application of a unified multi-scale analysis allows us to provide a continuous assessment of the link between money supply growth and inflation, unlike most of the existing literature studying this relationship. We also employ a bivariate frequency-domain causality test to determine the nature and direction of interdependence between money supply growth and inflation dynamics. Our findings provide a better understanding of their lead-lag linkages and causal relationship in the selected countries of the Asia-Pacific region.

JEL Classification: C40; E3; E4; E50

Acknowledgments

Stelios Bekiros has received funding from the EU Horizon 2020 research and innovation programme under the MS-C Grant No 656136. Gazi Salah Uddin is thankful for the financial support of Jan Wallanders and Tom Hedelius Foundation. We would like to thank the Editor Bruce Mizrach for his valuable remarks. Moreover, we would like to express our gratitude for the extensive and insightful comments made by the anonymous referee that helped us improve our work considerably.

Aguiar-Conraria, L., and M. J. Soares. 2014. “The Continuous Wavelet Transform: Moving Beyond Uni- and Bivariate Analysis.” Journal of Economic Surveys 28 (2): 344–375.10.1111/joes.12012Search in Google Scholar

Aguiar-Conraria, L., N. Azevedo, and M. J. Soares. 2008. “Using Wavelets to Decompose the Time–Frequency Effects of Monetary Policy.” Physica A: Statistical mechanics and Its Applications 387 (12): 2863–2878.10.1016/j.physa.2008.01.063Search in Google Scholar

Aguiar-Conraria, L., M. M. Martins, and M. J. Soares. 2012. “The Yield Curve and the Macro-economy Across Time and Frequencies.” Journal of Economic Dynamics and Control 36: 1950–1970.10.1016/j.jedc.2012.05.008Search in Google Scholar

Amisano, G., and G. Fagan. 2013. “Money Growth and Inflation: A Regime Switching Approach.” Journal of International Money and Finance 33: 118–145.10.1016/j.jimonfin.2012.09.006Search in Google Scholar

Assenmacher-Wesche, K., and S. Gerlach. 2006. “Understanding the Link Between Money Growth and Inflation in the Euro Area.”Discussion Paper Series, No 5683, CEPR.10.1057/9780230801479_2Search in Google Scholar

Assenmacher-Wesche, K., and S. Gerlach. 2007. “Money at Low Frequencies.” Journal of the European Economic Association 5 (2–3): 534–542.10.1162/jeea.2007.5.2-3.534Search in Google Scholar

Bekiros, S., and M. Marcellino. 2013. “The Multiscale Causal Dynamics of Foreign Exchange Markets.” Journal of International Money and Finance 33: 282–305.10.1016/j.jimonfin.2012.11.016Search in Google Scholar

Bekiros, S., D. K. Nguyen, G. S. Uddin, and B. Sjö. 2015. “Business Cycle (De) Synchronization in the Aftermath of the Global Financial Crisis: Implications for the Euro Area.” Studies in Nonlinear Dynamics and Econometrics 19 (5): 609–624.10.1515/snde-2014-0055Search in Google Scholar

Bekiros, S., D. K. Nguyen, G. S. Uddin, and B. Sjö. 2016. “On the Time Scale Behavior of Equity-Commodity Links: Implications for Portfolio Management.” Journal of International Financial Markets, Institutions and Money 41: 30–46.10.1016/j.intfin.2015.12.003Search in Google Scholar

Benati, L 2009. “Long-run Evidence on Money Growth and Inflation.”Working Paper Series, No 1027, European Central Bank.10.2139/ssrn.1345758Search in Google Scholar

Breitung, J., and B. Candelon. 2006. “Testing for Short and Long-run Causality: A Frequency Domain Approach.” Journal of Econometrics 132: 363–378.10.1016/j.jeconom.2005.02.004Search in Google Scholar

Carstensen, K 2007. “Is Core Money Growth a Good and Stable Inflation Predictor in the Euro Area?.”Working Paper Series, No 1318 Kiel Institute for the World Economy.Search in Google Scholar

Daubechies, I 1992. Ten Lectures on Wavelets. Philadelphia: SIAM.10.1137/1.9781611970104Search in Google Scholar

Dowd, K., J. Cotter, and L. Loh. 2011. “US Core Inflation: A Wavelet Analysis.” Macroeconomic Dynamics 15 (4): 513–536.10.1017/S1365100510000179Search in Google Scholar

Fan, Y., and R. Gençay. 2010. “Unit Root Tests with Wavelets.” Econometric Theory 26 (5): 1305–1331.10.1017/S0266466609990594Search in Google Scholar

Friedman, M 1961. “The Lag in Effect of Monetary Policy.” Journal of Political Economy 69: 447–466.10.1086/258537Search in Google Scholar

Friedman, M 1968. “The Role of Monetary Policy.” American Economic Review 58 (1): 1–17.Search in Google Scholar

Friedman, M., and A. J. Schwartz. 1963. A Monetary History of the United States, 1867–1960. Princeton: Princeton University Press.Search in Google Scholar

Gallegati, M., and J. B. Ramsey. 2014. “The Forward Looking Information Content of Equity and Bond Markets for Aggregate Investments.” Journal of Economics and Business 75: 1–24.10.1016/j.jeconbus.2014.04.002Search in Google Scholar

Gallegati, M., M. Gallegati, J. B. Ramsey, and W. Semmler. 2011. “The US Wage Phillips Curve Across Frequencies and over Time.” Oxford Bulletin of Economics and Statistics 73 (4): 489–508.10.1111/j.1468-0084.2010.00624.xSearch in Google Scholar

Gallegati, M., M. Gallegati, J. B. Ramsey, and W. Semmler. 2014. “Does Productivity Affect Unemployment? A Time-Frequency Analysis for the US.” In Wavelet Applications in Economics and Finance., 23–46. Basel: Springer International Publishing.10.1007/978-3-319-07061-2_2Search in Google Scholar

Gençay, R., B. Whitcher, and F. Selçuk. 2001. “Differentiating Intraday Seasonalities Through Wavelet Multi-scaling.” Physica A 289 (3–4): 543–556.10.1016/S0378-4371(00)00463-5Search in Google Scholar

Gençay, R., B. Whitcher, and F. Selçuk. 2002. An Introduction to Wavelets and Other Filtering Methods in Finance and Economics. San Diego: Academic Press.10.1016/B978-012279670-8.50004-5Search in Google Scholar

Gerlach, S 2003. “The ECB’s Two Pillars.”Discussion Paper Series, No 3689 CEPR.Search in Google Scholar

Gerlach, S 2004. “The Two Pillars of the ECB.” Economic Policy 40: 389–439.Search in Google Scholar

Geweke, J 1982. “Measurement of linear dependence and feedback between multiple time series.” Journal of the American Statistical Association 77 (378): 304–313.10.1080/01621459.1982.10477803Search in Google Scholar

Granger, C. W. J 1969. “Investigating causal relations by econometric models and cross-spectral methods.” Econometrica 37 (3): 424–438.10.2307/1912791Search in Google Scholar

Grauwe, P. D., and M. Polan. 2005. “Is Inflation Always and Everywhere a Monetary phenomenon?” The Scandinavian Journal of Economics 107 (2): 239–259.10.1142/9789814513197_0014Search in Google Scholar

Grinsted, A., J. C. Moore, and S. Jevrejeva. 2004. “Application of the Cross Wavelet Transform and Wavelet Coherence to Geophysical Time Series.” Nonlinear Processes in Geophysics 11: 561–566.10.5194/npg-11-561-2004Search in Google Scholar

Gronwald, M 2009. “Reconsidering the Macroeconomics of the Oil Price in Germany: A Testing for Causality in the Frequency Domain.” Empirical Economics 36: 441–453.10.1007/s00181-008-0204-3Search in Google Scholar

Hacker, R. S., H. K. Karlsson, and K. Månsson. 2014. “An Investigation of the Causal Relations Between Exchange Rates and Interest Rate Differentials Using Wavelets.” International Review of Economics & Finance 29: 321–329.10.1016/j.iref.2013.06.004Search in Google Scholar

Hofmann, B 2009. “Do Monetary Indicators Lead Euro Area Inflation?” Journal of International Money and Finance 28: 1165–1181.10.1016/j.jimonfin.2009.06.003Search in Google Scholar

Jensen, M., F. Cribari-Neto, and V. A. Reisen. 2003. “Long Memory Inflationary Dynamics: The Case of Brazil.” Studies in Nonlinear Dynamics and Econometrics 7 (3): 1–6.Search in Google Scholar

Jiang, C., T. Chang, and X. L. Li. 2015. “Money Growth and Inflation in China: New Evidence from a Wavelet Analysis.” International Review of Economics and Finance 35: 249–261.10.1016/j.iref.2014.10.005Search in Google Scholar

Kahn, G., and S. Benolkin. 2007. “The Role of Money in Monetary Policy: Why Do the Fed and ECB See It So Differently.” Economic Review Federal Reserve of Kansas City, 3rd Quarter, 5–36.Search in Google Scholar

Kaufmann, S., and P. Kugler. 2008. “Does Money Matter for Inflation in the Euro Area?” Contemporary Economic Policy 26 (4): 590–606.10.1111/j.1465-7287.2008.00113.xSearch in Google Scholar

Lenza, M 2006. “Does Money Help to Forecast Inflation in the Euro Area?” European Central Bank.Search in Google Scholar

Lucas, R. E 1980. “Two Illustrations of the Quantity Theory of Money.” American Economic Review 70 (5): 1005–1014.10.4159/harvard.9780674067851.c4Search in Google Scholar

Neumann, M. J. M., and C. Greiber. 2004. “Inflation and Core Money Growth in the Euro Area.”Discussion Paper Series, No 36/2004 Deutsche Bundesbank.10.2139/ssrn.2785081Search in Google Scholar

Percival, D., and A. Walden. 2006. Wavelet Methods for Time Series Analysis. Cambridge: Cambridge University Press.Search in Google Scholar

Ramsey, J 2002. “Wavelets in Economics and Finance: Past and Future.” Studies in Nonlinear Dynamics and Econometrics 6: 1–27.10.2202/1558-3708.1090Search in Google Scholar

Ramsey, J. B., and C. Lampart. 1998a. “The Decomposition of Economic Relationships by Time Scale Using Wavelets: Money and Income.” Macroeconomic Dynamics 2: 49–71.10.1017/S1365100598006038Search in Google Scholar

Ramsey, J. B., and C. Lampart. 1998b. “The Decomposition of Economic Relationships by Time Scale Using Wavelets: Expenditure and Income.” Studies in Nonlinear Dynamics & Econometrics 3 (1): 23–42.10.2202/1558-3708.1039Search in Google Scholar

Reboredo, J. C., and M. A. Rivera-Castro. 2014. “Wavelet-based Evidence of the Impact of Oil Prices on Stock Returns.” Review of Economics and Finance 29: 145–176.10.1016/j.iref.2013.05.014Search in Google Scholar

Rua, A 2012. “Money Growth and Inflation in the Euro Area: A Time-Frequency View.” Oxford Bulletin of Economics and Statistics 74 (6): 875–885.10.1111/j.1468-0084.2011.00680.xSearch in Google Scholar

Rua, A., and L. C. Nunes. 2009. “International Comovement of Stock Market Returns: A Wavelet Analysis.” Journal of Empirical Finance 16 (4): 632–639.10.1016/j.jempfin.2009.02.002Search in Google Scholar

Stock, J., and M. W. Watson. 2006. “Why Has U.S. Inflation Become Harder to Forecast?” NBER Working Paper (12324).10.3386/w12324Search in Google Scholar

Thornton, D. L 2014. “Monetary Policy: Why Money Matters (and Interest Rates Don’t).” Journal of Macroeconomics 40: 202–213.10.1016/j.jmacro.2013.12.005Search in Google Scholar

Torrence, C., and G. P. Compo. 1998. “A Practical Guide to Wavelet Analysis.” Bulletin of the American Meteorological Society 79: 605–618.10.1175/1520-0477(1998)079<0061:APGTWA>2.0.CO;2Search in Google Scholar

Torrence, C., and P. Webster. 1999. “Interdecadal Changes in the ESNOM on Soon System.” Journal of Climate 12: 2679–2690.10.1175/1520-0442(1999)012<2679:ICITEM>2.0.CO;2Search in Google Scholar

Uddin, G. S., A. T. Muzaffar, M. Arouri, and B. Sjö. 2016. “Understanding the Relationship Between Inflation and Growth: A Wavelet Transformation Approach in the Case of Bangladesh.” The World Economy. DOI:10.1111/twec.12429.Search in Google Scholar

Woodford, M 2000. “Monetary Policy in a World Without Money.” International Finance 3: 229–260.10.3386/w7853Search in Google Scholar


Supplemental Material

The online version of this article (DOI: https://doi.org/10.1515/snde-2016-0051) offers supplementary material, available to authorized users.


Published Online: 2017-4-5

©2017 Walter de Gruyter GmbH, Berlin/Boston

Downloaded on 27.10.2025 from https://www.degruyterbrill.com/document/doi/10.1515/snde-2016-0051/pdf
Scroll to top button