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A Fisher's equation of exchange analysis of money supply and inflation in Tanzania

Author

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  • Fulgence Dominick WARYOBA

    (St.Augustine University of Tanzania,Mwanza,Tanzania)

Abstract

Objective:The current study analyzed how Tanzania’s inflation is affected by the money supply.Fisher's equation of exchange was the subject of the current study.Methods:Before estimating the equation, the study tested for unit root problem in the series.Money was differenced stationary, while inflation was trend stationary.This allowed for co-integration test which confirmed long run relationship in two out of five approaches.Vector error correction (VEC) followed by vector auto regressive (VAR) model, paved way for Granger-causality test.Nevertheless, the study also pursued stability test after VEC and VAR estimation.Results:The VEC analysis proved a short run positive effect of money supply on inflation.However, under VAR, the positive relationship lasted for one year and reversed two years later.The Granger-causality test proved a unidirectional causality with broad money causing consumer price index.Originality:This is the only study that employed a pure Fisher’s equation of exchange to uncover the effect of broad money on inflation in Tanzania which was verified though not in the long run.

Suggested Citation

  • Fulgence Dominick WARYOBA, 2023. "A Fisher's equation of exchange analysis of money supply and inflation in Tanzania," Romanian Journal of Economics, Institute of National Economy, vol. 56(1(65)), pages 167-184, July.
    • Handle: RePEc:ine:journl:v:56:y:2023:i:65:p:167-184
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    Keywords

    inflation; demand for money;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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