THE CAUSAL NEXUS OF MONEY, OUTPUT AND PRICES IN MALAYSIA

Using Geweke's approach to Wiener-Granger causality, bidirectional cau sation between money supply and nominal output were detected. Inflatio n in Malaysia is essentially a monetary phenomenon. The empirical find ings suggest that by controlling money supply, the central bank might be able to successfully maintain price stability at producer's level b ut not at consumer's level unless narrow money stock is being targeted . Serious attempts by the central bank to tighten money supply could h ave a strong feedback on real output and even instantaneous impact on nominal output.