Money, Output and Inflation in Bangladesh: A Test of Cointegration and Causality

Abstract

This paper examines the relative impacts of money on economic growth and inflation in the economy of Bangladesh. It uses monthly data of Consumer Price Index, M2 multiplier, and industrial production index of Bangladesh from the Global Economic Monitor database of the World Bank. Using Johansen Co-integration and Vector Error Correction framework, the study finds that there is one cointegration relationship among these three variables. The Granger Causality results suggest that increased money multiplier has significant impacts on economic growth but non-significant impacts on inflation thus rejecting the neutrality of money in the Bangladesh economy over the study period. The results also suggest that the impact of money is unidirectional on economic growth.

Keywords: neutrality of money, economic growth, cointegration, causality

DOI: 10.7176/JESD/10-10-19

Publication date:May 31^st 2019