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Causal Relationship of Money Supply and Inflation: A Study of Bangladesh

Author

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  • Nair Sultana
  • Rabiunnesa Koli
  • Mahamuda Firoj

Abstract

The major intendment of this study is to investigate the relation between money supply and inflation in Bangladesh using monthly data spanning from 2010.05 to 2017.12. By utilizing the cointegration and Vector Error Correction Modeling (VECM) techniques this study demonstrate that money supply does not affect the inflation in short-run and this is not true in vice-versa. In the long run, this study depicts a bi-directional causal relationship of money supply to inflation. Thus for short-run inflation in Bangladesh is not a financial incident somewhat it can boost the growth of the money supply but in the long-run inflation can significantly be influenced by the money supply. This study recommends that the monetary authority of Bangladesh can pursue the monetary policy considering the long run effect of the money supply.

Suggested Citation

  • Nair Sultana & Rabiunnesa Koli & Mahamuda Firoj, 2019. "Causal Relationship of Money Supply and Inflation: A Study of Bangladesh," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(1), pages 42-51.
    • Handle: RePEc:asi:aeafrj:v:9:y:2019:i:1:p:42-51:id:1785
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    Citations

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    Cited by:

    1. Siyabonga Mndebele & Devi Datt Tewari & Kehinde Damilola Ilesanmi, 2023. "Testing the Validity of the Quantity Theory of Money on Sectoral Data: Non-Linear Evidence from South Africa," Economies, MDPI, vol. 11(2), pages 1-26, February.
    2. Eltejaei , Ebrahim & Montazeri Shoorekchali , Jalal, 2021. "Investigating the Relationship between Money Growth and Inflation in Turkey: A Nonlinear Causality Approach," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 16(3), pages 305-322, September.
    3. Fazal, Rizwan & Rehman, Syed Aziz Ur & Bhatti, M. Ishaq, 2022. "Graph theoretic approach to expose the energy-induced crisis in Pakistan," Energy Policy, Elsevier, vol. 169(C).
    4. Md. Nezum Uddin & Mohammed Jashim Uddin & Monir Ahmmed, 2019. "Money and Inflation Nexus in Bangladesh," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(6), pages 702-711, June.

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