This paper examines whether or not the fluctuations in monetary and credit aggregates contain useful information about subsequent future movements in nominal or real income in 10 developing countries. Using annual data covering the 1960–1990 period, empirical results showed that narrow (Ml) and broad (M2) monetary aggregates as well as domestic credit (DCR) contain statistically significant information about future movements in nominal income in some of the developing countries examined, while either M1 or M2 or DCR does in some other countries. However, when nominal income is decomposed into its real income and price components, the results suggest that these aggregates contained no statistically significant information about future movements in real income in nearly all the developing countries in the sample.
Get full access to this article
View all access options for this article.
References
1.
AdedejiA. (1991), “National Economic Policies of Africa: Egypt, Kenya, and Nigeria as Case Studies,” in Dominick Salvatore, ed. Handbook of Comparative Economic Policies. New York: Greenwood Press, 1, 277–305.
2.
AghevliB.KhanM. (1978), “Government Deficits and the Inflationary Process in Developing Countries,”IMF Staff Papers, 383–416.
3.
→ AlesinaA.SummersL. (1993), “Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence,”Journal of Money, Credit, and Banking, 25, 2, 151–162.
4.
BeckettiS.MorrisC. (1992), “Does Money Still Forecast Economic Activity,” Federal Reserve Bank of Kansas City, Economic Review (Fourth Quarter), 64–77.
5.
BoughtonJ. M. (1991), “The CFA Franc Zone: Currency Union and Monetary Standard,”IMF Working Paper, W/91/133, Unpublished manuscript (December), 1–31.
6.
→ CukiermanA.EdwardsS.TabelliniG. (1992), “Seigniorage and Political Instability,”American Economic Review, 82, 537–555.
7.
DarratA. (1986), “Money, Inflation, and Causality in North African Countries: An Empirical Investigation,”Journal of Macroeconomics, 8, 1, 87–103.
8.
DornbuschR.FischerS. (1994), Macroeconomics, 6th ed., New York: McGraw-Hill, Inc.
9.
DotseyM.OtrokC. (1994), “M2 and Monetary Policy: A Critical Review of the Recent Debate,” Federal Reserve Bank of Richmond, Economic Quarterly, 80, 1, 41–59.
10.
→ EngleR. F.GrangerC. W. J. (1987), “Cointegration and Error Correction: Representation, Estimation, and Testing,”Econometrica, 55, 251–276.
11.
FriedmanB. M.KuttnerK. N. (1993a), “Another Look at the Evidence of Money-Income Causality,”Journal of Econometrics (June) 57, 189–203.
12.
FriedmanB. M. (1993b), “The Role of Judgment and Discretion in the Conduct of Monetary Policy: Consequences of Changing Financial Markets,” in Changing Capital Markets: Implications for Monetary Policyin A Symposium Sponsored By The Federal Reserve Bank of Kansas City (August), 151–196.
13.
→ FriedmanB. M.KuttnerK. N. (1992), “Money, Income, Prices, and Interest Rates,”American Economic Review, 82, 472–492.
14.
GhatakS.DeadmanD. (1989), “Money, Prices and Stabilization Policies in Some Developing Countries,”Applied Economics, 21, 853–865.
15.
HarrisL. (1981), Monetary Theory, New York: McGraw-Hill Book Company, Chapters 3–12.
16.
HumpageO. F. (1994), “Central Bank Independence,” Federal Reserve Bank of Cleveland, Economic Commentary, (April).
17.
LondonA. (1989), “Money, Inflation and Adjustment Policy in Africa: Some Further Evidence,”African Development Review, 87–110.
18.
MashaR. A. (1983), “Comparative Use of Monetary Policy Tools in African Countries with Particular Reference to Nigeria, Zimbabwe and Kenya,”Central Bank of Nigeria Economic and Financial Review, 21, 19–28.
19.
McDonoughW. J. (1994), “An Independent Central Bank in a Democratic Country: The Federal Reserve Experience,” Federal Reserve Bank of New York, Quarterly Review, 19, 1–6.
20.
MillerS. M.RussekF. S. (1990), “CoIntegration and Error-Correction Models: The Temporal Causality Between Government Taxes and Spending,”Southern Economic Journal, 221–229.
21.
MillerS. M. (1991), “Monetary Dynamics: An Application of Co-Integration and Error-Correction Modeling,”Journal of Money, Credit, and Banking, 139–154.
22.
→ MontielP. J. (1989), “Empirical Analysis of High-Inflation Episodes in Argentina, Brazil, and Israel,”IMF Staff Papers, 36, 527–549.
23.
NugentJ. B.GlezakosC. (1979), “A Model of Inflation and Expectations in Latin America,”Journal of Development Economics, 6, 431–446.
24.
OliveraJ. H. G. (1964), “On Structural Inflation and Latin-American ‘Structuralism’,”Oxford Economics Papers, 16, 321–332.
25.
OtaniI. (1975), “Inflation in an Open Economy: A Case Study of the Philippines,”IMF Staff Papers, 22, 750–774.
26.
OxleyL. (1993), “Cointegration, Causality and Export-Led Growth in Portugal, 1865–1985,”Economic Letters, 43, 163–166.
27.
SainiK.G. (1982), “The Monetarist Explanation of Inflation: The Experience of Six Asian Countries,”World Development, 10,871–884.
28.
→ SheeheyE. J. (1979), “On the Measurement of Imported Inflation in Developing Countries,”Weltwirtschaftliches Archiv, 115, 68–79.
29.
TanziV. (1982), “Fiscal Disequilibrium in Developing Countries,”World Development, 10, 1069–1082.
30.
TanziV., (1978), “Inflation, Real Tax Revenue an the Case of Inflationary Finance: Theory With Application to Argentina,”IMF Staff Papers, 24, 154–167.
31.
TanziV., (1977), “Inflation, Lags in Collection and Real Value of Tax Revenue,”IMF Staff Papers, 23, 150–169.
32.
→ VogelR. C. (1974), “The Dynamics of Inflation in Latin America, 1950–1969,”American Economic Review, 64, 102–114.
