Impact of Money Supply on Inflation in Pakistan: A Time Series Analysis

Abstract

The study analyzed the impact of money supply on Inflation in Pakistan. The data is taken from World Development Indicators for the period 1971-2020. Augmented Dickey Fuller Test is applied to check the stationarity of data. Vector Error Correction Model is applied for long run and short run estimates because all the variables are integrated of order one. Vector Error Correction estimates show that money supply has positive and significant impact on Log of Consumer Price Index in the long run. Gross domestic product (GDP) also exerts strong positive impact on inflation in Pakistan.