The Relationship Between Money and Output in the Czech Republic Evidence from Var Analysis

This paper presents empirical evidence on money and output in the Czech Republic. The analysis of the effects of monetary phenomena on the real economy focuses heavily on evidence from vector autoregressions (VARs). The paper also examines the Granger causality between the real money supply and real output, finding that real output Granger causes real money supply. This causality is reflected several times in the impulse response functions in the VAR analysis. Finally, the authors impose output, money supply, interest rate, and depreciation shocks to test the responses of all endogenous variables in the VAR model. They find that the most significant and long-standing response is that of real output to the real interest rate shock. The results indicate that the real interest rate has played a primary role in the development of real output in the Czech Republic.