Dynamic Impact of Money Supply on Economic Growth in South Africa. An ARDL Approach

Dingela, Siyasanga and Khobai, Hlalefang (2017): Dynamic Impact of Money Supply on Economic Growth in South Africa. An ARDL Approach. Forthcoming in: Journal of Business and Economics Development , Vol. 2, No. 4 (9 November 2017): pp. 2-18.

Abstract

ABSTRACT: This study investigates the dynamic impact of broad money supply (m3) on economic growth (GDP) per capita in South Africa using time-series data from 1980 to 2016. The study has employed the autoregressive distributed lag (ARDL)-bounds testing approach to cointegration and error correction model to investigate the impact of m3 on GDP per capita. The model is specified with four macroeconomics variables, namely, Gross Domestic Product (GDP) per capita, Broad money supply (M3), Interest rate (INT), Inflation rate (INF). The findings reveal that there is statistically significant positive relationship between money supply and economic growth both in short run and long run. The government of South Africa should maintain consistency and follow “the Taylor rule” to allow money supply to increase at a steady rate keeping pace with the economic growth. In respect to such rule will help South Africa Reserve Bank to avoid the inefficiencies that caused by execution of discretionary policy.

• Item Type: MPRA Paper
• Language: English
• Keywords: Keywords: Economic growth; Money supply; Inflation rate; Interest rate; Autoregressive Distributed Lag (ARDL).
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E51 - Money Supply ; Credit ; Money Multipliers; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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