Abstract
It is argued that money/credit supply is neutral with respect to the real sector. Existing studies have focused on the relationship between money supply and national output. However, this paper using data from Hong Kong (first quarter 1983–second quarter 1997) examines the extent to which fluctuations in the money supply cause (or Granger-cause) fluctuations in real construction activity. Specifically, it is found that: (i) construction activity flows and construction loans are cointegrated, but their lead-lag relationship cannot be established; (ii) there is a specific and strong causal relationship between the construction activity and the broadly defined money supply M3; and (iii) positive money-supply shocks have a larger effect on construction output than negative money-supply shocks.
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