The Causal Relationship between Money Supply and Real GDP in The Libyan Economy: Using The VAR Method
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Money Supply, Real GDP, Causal relationship, Co-integration Test, TODA & YAMAMATO Test
Abstract
The paper aimed to study the causal relationship between changes in money supply and real output in the Libyan economy. The study used money supply in its broad concept (MS2) and real product (RGDP), for the period from 1980 to 2017, and the GRANGER causality test, TODA & YAMAMATO causality test, the joint complementarily test and the error correction model were performed to determine the equilibrium relationship between the two variables in the short and long term. The results showed the existence of a one-way relationship as it moves from the money supply to the real output, and this result was in support of the monetarists ’theses about the effect of money on economic activity.
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