The Relationship between Money Supply, Price Level and Economic Growth In Pakistan: Keynesian versus Monetarist View

Abdul Mansoor 1 , Quratulain Shoukat 1 , Shagufta Bibi 1 , Khushbakht Iqbal 1 , Romana Saeed 1  und Khalid Zaman 1
  • 1 Department of Economics, University of Wah, Quaid Avenue,, Wah Cantt, Pakistan

Abstract

The objective of the study is to examine the relationship between money supply, price level and economic growth in the context of Pakistan by using Autoregressive Distributed Lag (ARDL) model, covered a period of 1980 to 2016. The results confirm the long-run relationship between the variables while using broad money supply as a response variable. However, in the price and income modeling, the variables do not support the cointegration relationship between the variables. The causality results confirmed the unidirectional relationship running from income to money supply, which implies that income do causes money supply in the short run, whereas money supply leads to inflation to support Monetarist view of inflation in a country. The results conclude that economic growth is imperative to stabilize money supply and price level through sound economic policies in a country.

Falls das inline PDF nicht korrekt dargestellt ist, können Sie das PDF hier herunterladen.

  • 1. Abbas, K., & Husain, F. (2006). Money, Income and Prices in Pakistan: A Bi-variate and Tri-variate Causality. South Asia Economic Journal, 7(1), 55-65

  • 2. Agha, A. I., & Khan, M. S. (2006). An empirical analysis of fiscal imbalances and inflation in Pakistan. SBP research Bulletin, 2(2), 343-362.

  • 3. Ahmed, M. (2002). Money-Income and Money-Price Causality in Selected SAARC Countries: Some Econometric Exercises. Indian Economic Journal, 50(1), 55-62.

  • 4. Ashra, S., Chattopadhyay, S., & Chaudhuri, K. (2004). Deficit, money and price: The Indian experience. Journal of policy Modeling, 26(3), 289-299.

  • 5. Ball, L., & Romer, D. (1990). Real rigidities and the non-neutrality of money. The Review of Economic Studies, 57(2), 183-203.

  • 6. Bengali, K., Khan, A. H., & Sadaqat, M. (1999). Money, income, prices, and causality: The Pakistani experience. The Journal of Developing Areas, 36(4), 503-514.

  • 7. Boutabba, M. A. (2014). The impact of financial development, income, energy and trade on carbon emissions: Evidence from the Indian economy. Economic Modeling, 40, 33-41.

  • 8. Chishti, S. U., Hasan, M. A., & Mahmud, S. F. (1992). Macroeconometric modelling and Pakistan's economy: A vector autoregression approach. Journal of Development Economics, 38(2), 353-370.

  • 9. Cunado, J., & De Gracia, F. P. (2005). Oil prices, economic activity and inflation: evidence for some Asian countries. The Quarterly Review of Economics and Finance, 45(1), 65-83.

  • 10. Davidson, P., & Weintraub, S. (1973). Money as cause and effect. The Economic Journal, 83(332), 1117-1132.

  • 11. Demery, D., Duck, N. W., & Musgrave, S. W. (1984). Unanticipated money growth, output and unemployment in West Germany, 1964-1981. Review of World Economics, 120(2), 244-255.

  • 12. Enders, W. (2004). Applied time series econometrics. Hoboken: John Wiley and Sons.

  • 13. Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica: journal of the Econometric Society, 55(2), 251-276.

  • 14. Fischer, B., & Mayer, T. (1981). On the structuralist view of inflation in some Latin American countries: A reassessment. The Developing Economies, 19(1), 31-51.

  • 15. Friedman, M. (1989). Quantity theory of money. In Money (pp. 1-40). Palgrave Macmillan, London.

  • 16. Giap Tan, K., & Cheng, C. S. (1995). The causal nexus of money, output and prices in Malaysia. Applied Economics, 27(12), 1245-1251.

  • 17. Goldfeld, S. M., & Sichel, D. E. (1990). The demand for money. Handbook of monetary economics, 1, 299-356.

  • 18. Hall, P. A. (Ed.). (1989). The political power of economic ideas: Keynesianism across nations. Princeton University Press.

  • 19. Husain, F., & Rashid, A. (2009). Price hikes, economic reforms and causality in money, income and prices: evidence from Pakistan. The Pakistan Development Review, 48(2), 155-168.

  • 20. Hussain, M. (1982). The relative effectiveness of monetary and fiscal policy: An econometric case study of Pakistan. Pakistan Economic and Social Review, 20(2), 159-181.

  • 21. Hussain, M., & Bilquees, F. (1991). Money, Income, and Causality: Some Evidence from Pakistan. The Pakistan Development Review, 30(4), 907-918.

  • 22. Jiranyakul, K., & Brahmasrene, T. (2007). The relationship between government expenditures and economic growth in Thailand. Journal of Economics and Economic Education Research, 8(1), 93-104.

  • 23. Khan, A. H., & Siddiqui, A. N. (1990). Money, prices and economic activity in Pakistan: A test of causal relation. Pakistan Economic and Social Review, 28(2), 121-135.

  • 24. Khan, M. U. H. (2008). Short run effects of an unanticipated change in monetary policy: Interpreting macroeconomic dynamics in Pakistan. State Bank of Pakistan Working Paper, 22.

  • 25. Lavoie, M. (1984). The endogenous flow of credit and the post Keynesian theory of money. Journal of Economic Issues, 18(3), 771-797.

  • 26. Lee, S. Y., & Li, W. K. (1983). Money, Income and Prices and Their Lead-Lag Relationships in Singapore. Singapore Economic Review, 28(1), 73-87.

  • 27. Mehmood, T., & Arby, M. F. (2005). Relationship Among Money, Interest Rate, Prices And Output: Evidence from Pakistan. Pakistan Economic and Social Review, 43(1), 59-70.

  • 28. Momen, A. (1992). Money, Structuralism, and the International Monetary Fund: An Auto-Regression Assessment of the Controversy. The Bangladesh Development Studies, 20(4), 47-68.

  • 29. Narayan, P., & Smyth, R. (2005). Trade liberalization and economic growth in Fiji. An empirical assessment using the ARDL approach. Journal of the Asia Pacific Economy, 10(1), 96-115.

  • 30. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.

  • 31. Putnam, B. H., & Wilford, D. S. (1978). Money, income, and causality in the United States and the United Kingdom: A theoretical explanation of different findings. The American Economic Review, 68(3), 423-427.

  • 32. Sharma, M. S., Choi, W. G., & Strömqvist, M. (2007). Capital flows, financial integration, and international reserve holdings: the recent experience of emerging markets and advanced economies (No. 7-151). International Monetary Fund.

  • 33. Sidrauski, M. (1967). Inflation and economic growth. Journal of political economy, 75(6), 796-810.

  • 34. Sims, C. A. (1972). Money, income, and causality. The American economic review, 62(4), 540-552.

OPEN ACCESS

Zeitschrift + Hefte

Suche