Money growth and gdp growth are nearly orthogonal

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Money growth and GDP growth are nearly orthogonal, consistent with long-run monetary super neutrality 5 . He concludes that the quantity theory is a reliable model of inflation for most countries, but not those experiencing slow long-run money growths. Ireland (1994) found that the effects of inflation on growth are small and the effects of growth on the monetary system are substantial. The results are consistent with evidence that money and asset demands vary systematically within economies as they develop. Lucas (2000) in a survey of the welfare cost of inflation found that the gain from reducing the annual inflation rate from 10 per cent to zero is equivalent to an increase in real income of slightly less than one per cent. Stein (1966) on the other hand introduced such concepts of money into his growth model, and tried to analyze equilibrium growth and its stability. Furthermore, he considered the effects of variations in the growth rate of the supply of money and in the composition of money on the long-run equilibrium capital intensity and found a positive relationship between them. Grauwe and Polan (2005) use a sample of about 160 countries over a sample of 30 years to examine relationship between growth, money and inflation. They find a strong positive but
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Money Supply, Inflation and Economic Growth in Nigeria 153 unproportional relation between long-run inflation and the money growth rate on economic growth. They argue that the strong link between inflation and money growth is almost wholly attributable to the presence of high-(or hyper-) inflation countries in the sample. Using panel regressions and allowing for a nonlinear specification, Philips and Ghosh (1998) find a statistically and economically significant negative relationship between inflation and growth, which holds robustly at all but the lowest inflation rates. The authors use a “decision- tree” technique to identify inflation as one of the most important determinants of growth. Finally, short-run growth costs of disinflation are only relevant for the most severe disinflations, or when the initial inflation rate is well within the single-digit range. Bessler (1984) analyzes Brazilian agricultural prices, industrial prices, and money supply in a vector autoregression model. The empirical findings show strong, one-way, Granger-type causality from money supply to agricultural prices; while feedback is observed between industrial prices and money supply. Xie, Tang, Cui (2009) in an empirical analysis on the relationship between money supply, economic growth, and inflation in China from 1998 to 2007 with cointegration and Granger causality test approaches shows that there is no cointegration relationship among money supply, inflation, and economic growth, but there is cointegration relationship between money supply and inflation while there is no long run relationship between money supply and economic growth. Thus, they conclude that there is a contradiction between the goal of economic growth and of price stability in China. There finding and conclusion implies that it may be possible to
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