Title: Does money causes output? evidence from Indonesia

Authors: Mahrus Lutfi Adi Kurniawan; Nurul Azizah Az Zakiyyah; Aulia Hapsari Juwita

Addresses: Faculty of Economy and Business, Department of Economic Development, Universitas Ahmad Dahlan, Yogyakarta, 55166, Indonesia ' Faculty of Economy and Business, Department of Economic Development, Universitas Ahmad Dahlan, Yogyakarta, 55166, Indonesia ' Faculty of Economy and Business, Department of Economic Development, Universitas Negeri Sebelas Maret, Surakarta, 57126, Indonesia

Abstract: The debate on the role of monetary policy on output is growing and is of interest to researchers. Above the debate is the determination of the money-output relationship not only reflects the dynamic relationship between monetary aggregates and economic activity (output) but also involves important issues regarding the effectiveness of monetary policy in real economic activity. This study uses Bayesian vector autoregressive (BVAR) to construct a structural model of money-output in Indonesia. The results show that money plays an important role in output and narrow money has predictive power to the output. Another finding is that the exchange rate has greater variation and response size to output. The implication of the research is that monetary policy should be able to influence money that has a stronger predictive power on output and maintain exchange rate stability.

Keywords: BVAR; Bayesian vector autoregressive; money-output; structural model; exchange rate.

DOI: 10.1504/IJMEF.2025.150816

International Journal of Monetary Economics and Finance, 2025 Vol.18 No.6, pp.453 - 464

Accepted: 27 May 2025
Published online: 23 Dec 2025 *

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