Monireh Motamedi - Ph.D. in Economics, Monetary and Banking Research Institute (MBRI), Tehran, Iran
Ghazaleh Mohammadian - Ph.D. Candidate, School of Computer Science, Engineering and Mathematics, Flinders University, Australia.

This study investigated the dynamic relationship between money, prices and output in a multivariate structure of casualty analysis in Iran for the two period of ۱۹۶۹ to ۲۰۱۲ (entire period) and ۱۹۸۹ to ۲۰۱۲ (sub-period). This statistical framework has been projected for situations where causal links may have changed over the sample period. Results of a three-variable Vector Error Correction Model (VECM) analysis were indicative for existence of one co-integrated relationship between money supply, price and real output at both periods. Although there was a long run relationship between money, output and prices for both periods, direction of casualty has changed for sub-period. Also error correction terms showed that short run adjustment toward long run equilibrium was faster and stranger at sub-period, when Central Bank of Iran (CBI) adopted expansionary monetary policy and consequently rapid increase in liquidity. Finally money- output causality was not confirmed in this method and presence of correlation (not causality) between variables may just resulted from some other variables in economy as source of changes.

monetary policy, Error Correction Model, Granger Causality, Variance Decomposition, Money-Output Relationship