Journal of Business & Economic Policy

Granger Causality of the Inflation Growth Mirror, the Case for Mexico
Carolina Carbajal De Nova

Abstract
Analytical and econometric models are developed where exogenous money supply causes changes in inflation and output growth rate. It is found that money through the velocity of money is important for determining output growth and inflation structural breaks. The analytical model explain these facts by considering inflation as a tax on the return to human capital, which in turn induces a growth rate decrease. The empirical model uses Mexican data and panel Vector Autoregressive methodology to expound the equilibrium path dynamics for leading macroeconomic indicators: money growth, inflation and output growth. Granger causality tests support the finding that money Granger causes inflation and inflation Granger causes output.

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