Cointegration, causality and the government budget-inflation relationship in Greece

Abstract

This paper considers the relationship between cointegration and causality and uses tests of cointegration as pre-test for Granger tests of causality. The analysis is employed in analysing the government budget-inflation relationship in Greece. Empirical evidence suggest that there is a long-run relationship between government budget and price level and support the hypothesis of a bidirectional causality between the two variables.