Since the main objective of the paper is to test the existence of causality relationship between the three macroeconomic variables, namely real GDP, price level (CPI) and M2 money supply (MS), analysis has been made there by employing 40 years of data (data from 1975-2014). VAR Granger causality test has been made to verify the objective of the paper.
The VAR Granger causality test result suggesting the existence of strong and significant correlation between the three variable s pairwise. The direction of causation is found to be a uni- directional causation between money supply and inflation, real GDP and Money supply and between real GDP and inflation and the causation runs from money supply to inflation, real GDP to Money supply and real GDP to inflation respectively. From the causation we observed that money supply has relationship with level of price and economic growth (real GDP). Basically targeting monetary expansion has a multiple role to boost economic growth and control the level of inflation.
Table of Content
Abstract
1. Introduction
1.1. Back ground of the study
1.2. Statement of the Problem
1.3. Objective of the study
1.4. Scope of the study
1.5. Organization of the paper
2. Literature Review
2.1.Theoretical Literature Review
2.2. Empirical Literature Review
3. Research methodology
3. 1. Source and type data
3.2. Method of data analysis
3.3. Model specification
4. Empirical Result and discussion
4.1. Tests for Stationary, Unit root test (ADF)
4.2. VAR lag order selection criteria
4.3 .VAR Granger causality result
4.4. Wald test result results
5. Policy Implication and Recommendation
Reference
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