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The Relationship between Elastic Money Growth and Prices in Countries with the Largest Money Stock: An Econometric Review

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  • Farah Durani

    (Faculty of Finance, University of Business and Technology, Jeddah, Saudi Arabia.)

Abstract

The main objective of this paper is to examine the relationship between money expansion and inflation rates and asset price fluctuations across countries charged with highest money creation. The U.S.A, India, China and Japan reported with highest money stock in the world are studied for about 55 years. This research considers the monthly data of M2, the consumer price index, stock index values and real estate values in the stated countries. Johansen's Cointegration test indicates that a long term equilibrium relationship is seen between money supply and inflation rates and money supply and asset prices in all the four countries except India where money supply is not significantly cointegrated with the asset prices. Granger causality test results offer no definite inference, in China and Japan causality is mostly not established between the variables, however in the U.S.A and India significant causal relationship is seen.

Suggested Citation

  • Farah Durani, 2017. "The Relationship between Elastic Money Growth and Prices in Countries with the Largest Money Stock: An Econometric Review," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 262-269.
    • Handle: RePEc:eco:journ1:2017-04-35
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    References listed on IDEAS

    as
    1. Jamie Emerson, 2006. "The Quantity Theory of Money: Evidence from the United States," Economics Bulletin, AccessEcon, vol. 5(2), pages 1-6.
    2. Ariff, Mohamed & Chung, Tin-fah & M., Shamsher, 2012. "Money supply, interest rate, liquidity and share prices: A test of their linkage," Global Finance Journal, Elsevier, vol. 23(3), pages 202-220.
    3. repec:ebl:ecbull:v:5:y:2006:i:2:p:1-6 is not listed on IDEAS
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    More about this item

    Keywords

    Causality; Co-integration; Money Supply; Inflation; Asset Prices; Stock Indices; Real Estate Indices;
    All these keywords.

    JEL classification:

    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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