AN ASYMMETRIC ANALYSIS OF THE RELATIONSHIP BETWEEN MONEY SUPPLY AND REAL INCOME: A TEST OF MONETARY AND REAL BUSINESS CYCLE HYPOTHESES FOR MIST COUNTRIES

Abstract

This article aims to examine the asymmetric money-income relationship in MIST countries. For this purpose, Hatemi-J Panel Hidden Cointegration, asymmetric panel causality, FMOLS and DOLS tests were applied. Asymmetric causality test results reveal that there is a bidirectional causality between money supply and real income. The real business cycle hypothesis claims that the growth in the money supply is due to real income and not vice versa. The finding obtained as a result of asymmetric causality supports both monetary and real business cycle hypotheses for MIST countries. The result is that positive and negative cumulative real money supply shocks affect positive and negative cumulative real income in the economy; Similarly, they state that positive cumulative real income shocks also affect positive real income. Monetary authorities should regulate the money supply and real income independently of the positive and negative shocks in the market in order to eliminate the economic problems experienced as a result of sudden shocks in MIST countries and to stabilize the markets.