TY  - JOUR
T1  - Evidence on Real Exchange Rate-Inflation Causality: An Application of Toda-Yamamoto Dynamic Granger Causality Test
AU - Umar, Mohammed AU - Dahalan, Jauhari 
JO  - International Business Management
VL  - 9
IS  - 5
SP  - 666
EP  - 675
PY  - 2015
DA  - 2001/08/19
SN  - 1993-5250
DO  - ibm.2015.666.675
UR  - https://makhillpublications.co/view-article.php?doi=ibm.2015.666.675
KW  - Leverage bootstrap
KW  -Toda-Yamamoto causality
KW  -real exchange rate
KW  -inflation
KW  -structural break
AB  - The study provides further evidence of the real exchange rate and inflation causal relationship using Toda and Yamamoto augmented granger causality test in Malaysia, Nigeria, Philippines and South Africa. The critical values used in this study are simulated based on the leverage bootstrap. The results are compared between the granger asymptotic chi-square distribution, the modified WALD test statistics and the leverage bootstrapped distribution critical values. Conflicting findings are obtained which prove the existence of size distortion  and  nuisance  parameter  estimates  when  the  former  method  is  applied.  The  result  based  on the Toda-Yamamoto and leverage bootstrapped critical values reveal that policy intervention on inflation can stabilize real exchange rate in Malaysia and Nigeria but not vice versa. Moreover, bidirectional causation exists in Philippines and South Africa meaning that any policy intervention formulated on one variable can stabilize the other. The policy implication of this finding is that the policy makers can manipulate the rate of inflation to stabilize real exchange rate fluctuations in all countries under study but can only regulate inflation through exchange rate in the case of Philippines and South Africa.
ER  -