THE IMPACT OF MONEY SUPPLY ON INFLATION IN PAKISTAN

Abstract

This study examines the relationship between inflation, Money supply, interest rate and unemployment in Pakistan using annual time series data from 1987 to 2019. Inflation is used as the dependent variable and money supply (M2), unemployment and interest rate as the independent variable. Discount rate is used as the proxy of the interest rate. The results of ADF unit root test shows that variables have different order of integration. The study used ARDL cointegration approach to test the long run and short run for the existence among the variables. The results found that there is long run as well as short run relationship among the variables.