MONEY, INCOME AND PRICES UNDER FIXED EXCHANGE-RATES - EVIDENCE FROM CAUSALITY TESTS AND VARS

This paper investigates the impact of changes in monetary variables on the domestic and foreign sectors, the determinants of central bank po licy, and the response to foreign monetary changes in Mexico and India . Multivariate Granger-causality tests, variance decompositions and im pulse response functions are utilized to examine propositions regardin g causal relationships among key economic variables. The results indic ate that domestic monetary policy did not affect output in either coun try. A substantial balance of payments offset to changes in domestic c redit was found in India, but not for Mexico. The Mexican central bank pursued an accommodative monetary policy, but did not sterilize. In I ndia, the central bank sterilized, but did not respond to income or pr ice fluctuations. Output responded in each country to changes in forei gn money.