Money supply and inflation impact on economic growth

Abstract

Purpose

At present, countries are concerned about inflation and the impact of inflation on each country’s economic growth. This inflation has been said by economists that inflation is a phenomenon of currency and currency, which has caused inflation in some countries by their monetary policy. According to the economic theory of Karl Marx, Irving Fisher, Friedman, inflation is caused by a continuous increase in the money supply.

Design/methodology/approach

The economic theories of Fisher, Friedman and an econometric model are applied to analyse the relationship between money supply and inflation. Besides, Vietnam’s and China’s research data are also collected in the period of 2012-2016.

Findings

It is found out that the continuous increase in the money supply causes inflation in the long-term, but the continuous increase in the money supply growth does not cause inflation in a short time, this was analyzed based on the theory of monetary quantity. Moreover, Chia’s and Vietnam’s correlations of the money supply growth and inflation are 99.1 per cent. These correlations are very close.

Originality/value

Research results show that money supply and inflation are closely related, and the money supply directly affects economic growth. Therefore, the government should have the relevant monetary policy to grow the economy and proposals to make monetary policy, control inflation levels and stimulate economic growth.

Citation

Doan Van, D. (2020), "Money supply and inflation impact on economic growth", Journal of Financial Economic Policy, Vol. 12 No. 1, pp. 121-136. https://doi.org/10.1108/JFEP-10-2018-0152