Investigating Long-run Relationship between Money, Income and Price for Bangladesh: Application of Econometrics and Cross Spectra Methods

This study examines the long-run causation between the three major macroeconomic variables namely real GDP, money supply and price level in the Bangladesh context. The results obtained by applying time series econometric techniques reveal that unidirectional causation exists between real GDP and prices. The study also suggests that causation runs from money supply to prices but price level does not causes money supply. However, co-integration analysis ascertains long run relationship between these three variables. Moreover, in order to decompose Granger causality between real GDP, money supply and prices in the frequency-domain, Lemmens et al. (2008) method of cross spectra analysis has been used which imply that money supply granger causes real GDP over the short-run, but in the long run, money supply Granger causes prices, not real GDP.Journal of Science Foundation, January 2016;14(1):17-25