The Role of Money Supply in the Economic Growth of Pakistan

Abstract

The study investigates the role of money supply in the economic growth of Pakistan by using data over the period 1980 to 2014. Econometric techniques such as ordinary least squares method, granger causality test and vector auto regression has been used for estimating the results. It is found out that money supply put positive impact on the economic growth of Pakistan. Similarly, Granger Causality test has been applied for examining the causal relationship between the money supply and economic growth. The results show that money supply granger cause economic growth. Similarly, the VAR results also supported these results.
On the basis of the findings the study it is concluded that monetary policy of the State Bank of Pakistan is playing a significant role in the determination of the economic growth of Pakistan. However, this expansionary effect of the money supply is conditional on the inflation which in turn can hinders the economic growth.