Money, Income, Prices and Causality in Pakistan: A Trivariate Analysis

Research Reports
Publication Year : 2000

There has been a long debate in economics regarding the role of money in an economy particularly in the determination of income and prices. The Monetarists claim that money plays an active role and leads to changes in income and prices. In other words, changes in income and prices in an economy are mainly caused by the changes in money stocks. Hence, the direction of causation runs from money to income and prices without any feedback, i.e., unidirectional causation.