Causality tests of the United States weekly money supply and Asian-pacific stock markets

Causality tests are used to examine the relationship between stock returns in 10 Pacific Rim countries and announcements of the US weekly M1 growth rate over the period 1980-1990. Results do not support a direct causal relationship between Asian-Pacific stock returns and changes in the US weekly money supply. However, there may exist an indirect relationship between these 2 series. For instance, any changes in the US weekly money supply may affect the US interest rates (liquidity effect), and hence the US interest rates rather than the US money growth rate may have a direct impact upon the Asian-Pacific stock markets. Thus, it is advisable to include an appropriate US interest rate for further exploration of the relationship between changes in the US weekly money supply and Asian-Pacific stock markets.