PRODUCTIVITY, INFLATION, AND INVESTMENT: AN ANALYSIS OF CAUSALITY

José Antonio Núñez and José Luis de la Cruz

No 154, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: This paper elaborates a Vector Error Correction (VEC) in order to determine the causality between inflation and productivity, and between the productivity and investment in Mexico. A VEC allows a causality analysis among cointegrated variables with the same integration order [Hall and Milne, 1994]. This work incorporates the test of constancy in the cointegration rank developed by Quintos (1997). The results show a consistent and bidirectional causality between inflation and productivity. Furthermore, these results denote that some investment components (mainly machinery and equipment imports, and construction) have a strong link with productivity.

Keywords: causality; constancy of rank (search for similar items in EconPapers)
JEL-codes: C51 (search for similar items in EconPapers)
Date: 2004-08-11
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