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

Abstract

This study investigates the dynamic impact of broad money supply (m2) on Gross domestic product (GDP) in Algeria using time-series data from 1980 to 2017 . The study has employed the autoregressive distributed lag (ARDL)-bounds testing cointegration and error correction model to investigate the impact of M2 on GDP. The model is specified with six macroeconomics variables, namely, Gross Domestic Product (GDP), Broad money supply (M2), Discount rate (DR), Inflation rate (INF) , real exchange rate (reer) , government expenditure(gov) . The findings reveal that there is statistically significant positive relationship between money supply and economic growth both in short run and long run.Where The central banker in Algeria should maintain consistency and follow “the Taylor rule” to allow money supply to increase at a steady rate keeping pace with the economic growth