Money Supply, Inflation and Economic Growth in China: An ARDL Bounds Testing Approach

Abstract

The empirical analysis applies the autoregressive distributed lag bounds testing approach to investigate the relationship between money supply, inflation and economic growth in China with the time series data from 1980 to 2018, estimate the cointegration of monetary and economic growth in long-run relationship and uses vector error correction model to determine the short-run adjustment between the variables. The research showed that the increase in national income met people's demand for goods and eased inflationary pressures. The results support the view of monetarism and help the government formulate economic policies in a prudent manner to control inflation in China. JEL classification numbers: A10, E52, P44 Keywords: ARDL bounds test, Long-Run, Monetary Neutrality.