The Role of Money Supply in Shaping Poland’s Gross Domestic Product

Purpose: The main aim of this study was to evaluate changes in money supply measured by the monetary aggregate and the relationship between money supply and Poland’s economic growth measured by the gross domestic product (GDP). We used the GDP measured in current prices (nominal GDP). It is proved that in the short period the money supply has an impact on GDP, but in the longer term, the money supply only has an effect on price growth. The supply of money is endogenous. Design/Methodology/Approach: Data for the study were obtained from the National Bank of Poland and the Polish Financial Supervision Authority. The analyzed data covered the period from December 1996 to January 2024, which produced 326 observations. Data were analyzed using the generalized autoregressive conditional heteroskedastic (GARCH) model. The second method used in the paper was ordinary least squares (OLS) to measure the impact of M0-M3 aggregates on minimal GDP measured in current prices (nominal GDP). We used average yearly data to measure the impact of M0-M3 aggregates on GDP. Findings: The study revealed increased monetary aggregates M0-M3 and the GDP. In 2023, Poland’s GDP exceeded PLN 3 trillion. The analyses demonstrated a strong relationship between money supply expressed by monetary aggregates M0-M3 and Poland’s GDP. The M2 aggregate had impact on GDP, what points out the significant role of government bonds. More of countries GDP in Polish and other countries' economies is caused by debt. The most liquid money, M0-M1, has the strongest but negative impact on GDP. Practical implications: The study contributes important information about the role of money supply in the economy, and the presented findings can be used in the process of shaping the Central Bank’s financial policy. Originality/Value: The new information about changes in the aggregate supply of money and correlations with GDP