Money supply, inflation and economic growth in Libya

The aim of this study is to exam the relationship between money supply, inflation and economic growth in Libya. Vector Auto-regression Model, Johansen co-integration test and Granger causality were used in the analysis for the sample period 1960-2016. The results shown that all the variables are co-integrated in long term. Furthermore, the increase in economic growth by 1% decreases Inflation by 1.55%. While the growth in money supply by 1 percent will increase the price level by 1.15 %. According to the results of causality test, there is no causality direction in short run between the study variables except unidirectional causality among economic growth and money supply running from RGDP to RM2 according to 5% significance level. In addition, the response of inflation on the economic growth is negative all throughout the ten periods, also the same applies to money supply and economic growth. Also besides, economic growth had an early and positive impact on money supply.