The impact of money on output in Czech Republic and Romania
Abstract
The problem of relationship between output and money has become again a subject of special interests of economists after the most recent global financial crisis and monetary stabilization policies applied by central banks of almost all developed economies. In this context, the main aim of this paper is to assess the relation between GDP and the most important monetary variables in two countries: Romania and Czech Republic over the period of 1995:Q1 – 2015:Q4. The choice of these economies was deliberate. The selected countries are different from the viewpoint of rate and results of transformation from the centrally planned to market economy, which have influenced their current economic environment stability. Czech Republic is currently classified as middle or even developed country, whereas Romania is still considered as a developing economy. Thus, differences between these two countries make them interesting in the case of comparative studies. In the empirical part of our research the vector error correction models (VECM) were applied. The main findings of the article are the following: in Romania, there is a short-run causality from money supply (M3) to GDP and a long-run relationship between GDP, internal credit and M3. According to Granger causality test, the rate of M3 in Romania was a cause for economic. In Czech Republic, there is a short-run causality from M3 to GDP and a long-run causality between GDP, internal credit and M3. Thus, the results contradict the money neutrality hypothesis in post-transformation Central European economies.
Keyword : GDP, VECM, internal credit, money demand, neutrality of money, Granger causality
How to Cite
Simionescu, M., Balcerzak, A. P., Bilan, Y., & Kotásková, A. (2018). The impact of money on output in Czech Republic and Romania. Journal of Business Economics and Management, 19(1), 20-41. https://doi.org/10.3846/jbem.2018.1480
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Leitão, N. C. 2010. Financial development and economic growth: A panel data approach, Theoretical and Applied Economics 5(511): 15–24.
Leitão, N. C. 2013. Financial management and economic growth: The European countries experience, Economia. Seria Management 4: 261–268.
Levine, R. 1997. Financial development and economic growth: Views and agenda, Journal of Economic Literature 35: 688–726.
Li, H.; Zhong, W.; Park, S. Y. 2016. Generalized cross–spectral test for nonlinear Granger causality with applications to money–output and price–volume relations, Economic Modelling 52: 661–671. https://doi.org/10.1016/j.econmod.2015.09.037
Lucas, R. E. 1980. Two illustrations of the quantity theory of money, American Economic Review 70(5): 1005–1014.
Nelson, E. 2003. The future of monetary aggregates in monetary policy analysis, Journal of Monetary Economics 50: 1029–1059. https://doi.org/10.1016/S0304-3932(03)00063-1
Padovano, F.; Galli, E. 2002. Comparing the growth effects of marginal vs. average tax rates and progressivity, Europäische Zeitschrift für politische Ökonomie 18(3): 529–544.
Palankai, T. 2015. The introduction of the euro and central Europe, Economics & Sociology 8(2): 51–61. https://doi.org/10.14254/2071-789X.2015/8-2/5
Pietrzak, M. B.; Fałdziński, M.; Balcerzak, A. P.; Meluzín, T.; Zinecker, M. 2017. Short–term shocks and long–term relationships of interdependencies among central european capital markets, Economics & Sociology 10(1): 61–77. https://doi.org/10.14254/2071-789X.2017/10-1/5
Saatcioglu, C.; Korap, L. 2009. The search for co–integration between money, prices and income: low frequency evidence from the Turkish economy, Panoeconomicus 56(1): 55–72. https://doi.org/10.2298/PAN0901055S
Sargent, T. J.; Surico, P. 2011. Two illustrations of the quantity theory of money: breakdowns and revivals, American Economic Review 101(1): 109–128. https://doi.org/10.1257/aer.101.1.109
Simionescu, M. 2014. The assessment of parameters’ uncertainty in a vector error correction model for Romania, Romanian Journal of Economics 37(2): 124–134.
Simionescu, M.; Popescu, J.; Firescu, V. 2017. The relationship between gross domestic product and monetary variables in Romania. A Bayesian approach, Economic research-Ekonomska istraživanja 30(1): 464–476. https://doi.org/10.1080/1331677X.2017.1305798
Sims, C. 1972. ‘Money, income and causality’, American Economic Review 62: 540–552.
Sims, C. A.; Zha, T. 2006. Were there regime switches in U.S. monetary policy?, American Economic Review 96: 54–81. https://doi.org/10.1257/000282806776157678
Stock, J. H.; Watson, M. W. 1989. Interpreting the evidence on money–income causality, Journal of Econometrics 40: 161–181. https://doi.org/10.1016/0304-4076(89)90035-3
Svitálková, Z. 2014. Comparison and evaluation of bank efficiency in Austria and the Czech Republic, Journal of Competitiveness 6(2): 15–29. https://doi.org/10.7441/joc.2014.02.02
Taylor, J. B.1999. Monetary policy rules. Chicago: University of Chicago Press, 15–18. https://doi.org/10.7208/chicago/9780226791265.001.0001
Telatar, E.; Cavusoglu, T. 2005. Long–run monetary neutrality: Evidence from high inflation countries, Ekonomicky Casopis 53(9): 895–910.
Urbanovský, T. 2016. Interconnection of interest rate, price level, money supply and real GDP: The case of the Czech Republic, Procedia-Social and Behavioral Sciences 220: 531–540. https://doi.org/10.1016/j.sbspro.2016.05.529
Wang, X.; Zheng, T.; Zhu, Y. 2014. Money–output Granger causal dynamics in China, Economic Modelling 43: 192–200. https://doi.org/10.1016/j.econmod.2014.08.004
Yıldırım, T. 2015. Did the euro trigger the European dept crises?, Journal of International Studies 8(2): 43–51. https://doi.org/10.14254/2071-8330.2015/8-2/4
Asongu, S. 2016. New empirics of monetary policy dynamics: evidence from the CFA franc zones, African Journal of Economic and Management Studies 7(2): 164–204. https://doi.org/10.1108/AJEMS-11-2012-0079
Bae, S. K.; Jensen, M. J.; Murdock, S. G. 2005. Long–run neutrality in a fractionally integrated model, Journal of Macroeconomics 27(2): 257–274. https://doi.org/10.1016/j.jmacro.2003.11.019
Belongia, M. T.; Ireland, P. N. 2016. The evolution of U.S. monetary policy: 2000–2007, Journal of Economic Dynamics and Control 73: 78–93. https://doi.org/10.3386/w22693
Brózda, D. 2016. Transmission mechanism of the Federal Reserve system’s monetary policy in the conditions of zero bound on nominal interest rates, Equilibrium. Quarterly Journal of Economics and Economic Policy 11(4): 751–767. https://doi.org/10.12775/EQUIL.2016.034
Chen, S. W. 2007. Evidence of the long–run neutrality of money: the case of South Korea and Taiwan, Economics Bulletin 3(64): 1–18.
Clarida, R.; Gali, J.; Gertler, M. 2000. Monetary policy rules and macroeconomic stability: evidence and some theory, Quarterly Journal of Economics 115: 147–180. https://doi.org/10.1162/003355300554692
Duca, J. V.; VanHoose, D. D. 2004. Recent developments in understanding the demand for money, Journal of Economics and Business 56: 247–272. https://doi.org/10.1016/j.jeconbus.2004.01.001
Fałdziński, M.; Balcerzak, A. P.; Meluzín, T.; Pietrzak, M. B.; Zinecker, M. 2016. Cointegration of interdependencies among capital markets of chosen Visegrad countries and Germany, in 34th International Conference Mathematical Methods in Economics MME 2016, 6–9 September 2016, Liberec, Czech Republic.
Fisher, M. E.; Seater, J. J. 1993. Long–run neutrality and superneutrality in an ARIMA framework, American Economic Review 83(3): 402–415.
Gefang, D. 2012. Money‐output causality revisited – a Bayesian logistic smooth transition VECM perspective, Oxford Bulletin of Economics and Statistics 74(1): 131–151. https://doi.org/10.1111/j.1468-0084.2011.00652.x
Hassan, M.; Sanchez, K.; Yu, S. J. 2011. Financial development and economic growth: New evidence from panel data, The Quarterly Review of Economic and Finance 51: 88–104. https://doi.org/10.1016/j.qref.2010.09.001
Hill, J. B. 2007. Efficient tests of long–run causation in trivariate VAR processes with a rolling window
study of the money–income relationship, Journal of Applied Econometrics 22: 747–765. https://doi.org/10.1002/jae.925
Hiscock, R.; Handa, J. 2013. Long–run neutrality and superneutrality of money in South American economies, Applied Financial Economics 23(9): 739–747. https://doi.org/10.1080/09603107.2012.744132
Issaoui, F.; Boufateh, T.; Guesmi, M. 2015. Money neutrality: rethinking the myth, Panoecomicus 62(3): 287–320. https://doi.org/10.2298/PAN1503287I
Janus, J. 2016. The transmission mechanism of unconventional monetary policy, Oeconomia Copernicana 7(1): 7–21. https://doi.org/10.12775/OeC.2016.001
Jędrzejowska Schiffauer, I.; Schiffauer, P. 2016. European Central Bank’s OMT decision: still within the framework of the monetary policy?, Journal of International Studies 9(2): 195–206. https://doi.org/10.14254/2071-8330.2016/9-2/15
King, R. G.; Watson, M. W. 1997. Testing long-run neutrality. Federal Reserve Bank of Richmond, Economic Quarterly 83(3): 69–101.
Koch, S.; Schoeman, N.; Tonder, J. 2005. Economic growth and the structure of taxes in South Africa: 1960–2002, The South African Journal of Economics 73(2): 190–210. https://doi.org/10.1111/j.1813-6982.2005.00013.x
Korauš, A.; Simionescu, M.; Bilan, Y.; Schönfeld, J. 2017. The impact of monetary variables on the economic growth and sustainable development: case of selected countries, Journal of Security and Sustainability Issues 6(3): 383–390. https://doi.org/10.9770/jssi.2017.6.3(5)
Lakic, S.; Draskovic, M. 2015. Implications of institutional dispositions of neoliberalism, Montenegrin Journal of Economics 11(2): 113–121. https://doi.org/10.14254/1800-5845.2015/11-2/7
Lee, J. 2012. Nonparametric testing for long–run neutrality with applications to US money and output data, Computational Economics 40(2): 183–202. https://doi.org/10.1007/s10614-011-9270-2
Lee, Y.; Gordon, R. H. 2005. Tax structure and economic growth, Journal of Public Economics 89(5–6): 1027–1043. https://doi.org/10.1016/j.jpubeco.2004.07.002
Leitão, N. C. 2010. Financial development and economic growth: A panel data approach, Theoretical and Applied Economics 5(511): 15–24.
Leitão, N. C. 2013. Financial management and economic growth: The European countries experience, Economia. Seria Management 4: 261–268.
Levine, R. 1997. Financial development and economic growth: Views and agenda, Journal of Economic Literature 35: 688–726.
Li, H.; Zhong, W.; Park, S. Y. 2016. Generalized cross–spectral test for nonlinear Granger causality with applications to money–output and price–volume relations, Economic Modelling 52: 661–671. https://doi.org/10.1016/j.econmod.2015.09.037
Lucas, R. E. 1980. Two illustrations of the quantity theory of money, American Economic Review 70(5): 1005–1014.
Nelson, E. 2003. The future of monetary aggregates in monetary policy analysis, Journal of Monetary Economics 50: 1029–1059. https://doi.org/10.1016/S0304-3932(03)00063-1
Padovano, F.; Galli, E. 2002. Comparing the growth effects of marginal vs. average tax rates and progressivity, Europäische Zeitschrift für politische Ökonomie 18(3): 529–544.
Palankai, T. 2015. The introduction of the euro and central Europe, Economics & Sociology 8(2): 51–61. https://doi.org/10.14254/2071-789X.2015/8-2/5
Pietrzak, M. B.; Fałdziński, M.; Balcerzak, A. P.; Meluzín, T.; Zinecker, M. 2017. Short–term shocks and long–term relationships of interdependencies among central european capital markets, Economics & Sociology 10(1): 61–77. https://doi.org/10.14254/2071-789X.2017/10-1/5
Saatcioglu, C.; Korap, L. 2009. The search for co–integration between money, prices and income: low frequency evidence from the Turkish economy, Panoeconomicus 56(1): 55–72. https://doi.org/10.2298/PAN0901055S
Sargent, T. J.; Surico, P. 2011. Two illustrations of the quantity theory of money: breakdowns and revivals, American Economic Review 101(1): 109–128. https://doi.org/10.1257/aer.101.1.109
Simionescu, M. 2014. The assessment of parameters’ uncertainty in a vector error correction model for Romania, Romanian Journal of Economics 37(2): 124–134.
Simionescu, M.; Popescu, J.; Firescu, V. 2017. The relationship between gross domestic product and monetary variables in Romania. A Bayesian approach, Economic research-Ekonomska istraživanja 30(1): 464–476. https://doi.org/10.1080/1331677X.2017.1305798
Sims, C. 1972. ‘Money, income and causality’, American Economic Review 62: 540–552.
Sims, C. A.; Zha, T. 2006. Were there regime switches in U.S. monetary policy?, American Economic Review 96: 54–81. https://doi.org/10.1257/000282806776157678
Stock, J. H.; Watson, M. W. 1989. Interpreting the evidence on money–income causality, Journal of Econometrics 40: 161–181. https://doi.org/10.1016/0304-4076(89)90035-3
Svitálková, Z. 2014. Comparison and evaluation of bank efficiency in Austria and the Czech Republic, Journal of Competitiveness 6(2): 15–29. https://doi.org/10.7441/joc.2014.02.02
Taylor, J. B.1999. Monetary policy rules. Chicago: University of Chicago Press, 15–18. https://doi.org/10.7208/chicago/9780226791265.001.0001
Telatar, E.; Cavusoglu, T. 2005. Long–run monetary neutrality: Evidence from high inflation countries, Ekonomicky Casopis 53(9): 895–910.
Urbanovský, T. 2016. Interconnection of interest rate, price level, money supply and real GDP: The case of the Czech Republic, Procedia-Social and Behavioral Sciences 220: 531–540. https://doi.org/10.1016/j.sbspro.2016.05.529
Wang, X.; Zheng, T.; Zhu, Y. 2014. Money–output Granger causal dynamics in China, Economic Modelling 43: 192–200. https://doi.org/10.1016/j.econmod.2014.08.004
Yıldırım, T. 2015. Did the euro trigger the European dept crises?, Journal of International Studies 8(2): 43–51. https://doi.org/10.14254/2071-8330.2015/8-2/4