survey of money- output causality: case study of iran, based on vector error correction model (vecm)

this study investigated the dynamic relationship between money, prices and output in a multivariate structure of casualty analysis in iran for the two period of 1969 to 2012 (entire period) and 1989 to 2012 (sub-period). this statistical framework has been projected for situations where causal links may have changed over the sample period. results of a three-variable vector error correction model (vecm) analysis were indicative for existence of one co-integrated relationship between money supply, price and real output at both periods. although there was a long run relationship between money, output and prices for both periods, direction of casualty has changed for sub-period. also error correction terms showed that short run adjustment toward long run equilibrium was faster and stranger at sub-period, when central bank of iran (cbi) adopted expansionary monetary policy and consequently rapid increase in liquidity. finally money- output causality was not confirmed in this method and presence of correlation (not causality) between variables may just resulted from some other variables in economy as source of changes.