Money Supply, Food Prices and Manufactured Product Prices: A Causality Analysis for Pakistan Economy

Abstract

This pioneer research for Pakistan uses monthly time series data for the period of 1997-1 to 2008-4 to determine the causal relationship between the money supply, food prices and manufactured product prices in developing country like Pakistan. Empirical analysis is performed by using the ARDL and Toda Yamamoto causality test. The results show that the bidirectional causality between the food prices and money supply and unidirectional causality from money supply to manufactured product prices. On the other hand there is no causal relationship between the food prices and manufactured product prices. The important finding of this study is that food prices response faster then the manufactured product prices to a change in money supply in the Pakistan.