The relationship between M3 and consumer price index in the Czech Republic

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Libena Cernohorska


The aim of this paper is to analyse the influence of monetary aggregate M3 on consumer price index (CPI) in the Czech Republic. Co-integration of this selected indicator M3 is demonstrated in relation to the development of CPI using the Engle – Granger co-integration test. These tests are applied to selected statistical data from 2003 to 2016. First step is to determine the optimum delay using Akaike criteria for all-time series analysed. Then the presence of a unit root is analysed using the Dickey–Fuller test. Based on the test results, time series is excluded, which appears to be stationary. If the conditions are met, testing then continued with the Engle–Granger test to detect cointegration relations, which would determine a longterm relationship between selected variables. Based on these tests, it is found that at a significance level of 0.05 doesn’t exist cointegration relationship between M3 and CPI in the Czech Republic. Conclusions resulting from the verification of the hypotheses are supported with graphical visualisation of data from which it is apparent that these hypotheses can be rejected.

Keywords: Akaike crieteria, Dickey–Fuller test, Engle–Granger cointegration test, CPI, M3.


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Cernohorska, L. (2017). The relationship between M3 and consumer price index in the Czech Republic. New Trends and Issues Proceedings on Humanities and Social Sciences, 4(10), 23–32. (Original work published January 12, 2018)