Interest Rate and Inflation Nexus, an Application of Granger Causality Test Empirical Investigation: A Case Study of UK

Abstract

The study is an application of VAR Granger Causality test on time series data. It conducted on United Kingdom (UK) annual data from 1989 to 2017. The time-series analysis used. Both formal and informal method is used to determine the stationary level. For regression analysis, Vector Autoregression model and Johnson cointegration equation used. The result found that interest rate and inflation are stationary at first difference, i.e. I(1). VAR Granger causality test between inflation and interest rate found that there is bilateral causality among these variables.