The Influence of Money Supply and Interest Rate on Inflation

Abstract

The following article analysis the influence of the money supply and interest rate over inflation. In order to prove our assumptions we have followed the date available in the United States and China over a period of 24 years . These two countries are so different and yet similar in many ways. Although China does not support USA and tries to outweigh USA as the most important economy in the world, it is an important pioneer of promoting the US dollar, by keeping its exchange rate pegged to the USD. This research will prove that these economies depend on each other. The article presents a different statistical approach in analyzing the effects of money supply and interest on inflation but not the other way around. Different monetary policies embraced by China and USA can be the starting point in estimating inflation by using past data and analyzing monetary policies adopted along the years. The model created will present different applicability on China and USA. This is because of the influence of the political sector over the Chinese economy and the unhealthy growth of the money supply. By using monthly data for several years in Mathlab, an approximate equation with low level of error it is desired. As long as the data are accurate, this research could create a clear and healthy image of the monetary system of an economy. The main question after this research was the high error of the equation resulted in China, although using the same statistical database. Are the data published for monetary indicators in China are accurate?

Macroeconomic Variables Affecting Money Supply: A Study of Nepalese Economy

“…Our findings establish a significant relationship between money supply and inflation, consistent with Bakare (2011) andDragos et al (2013), aligning with previous studies. However, divergent results are seen inJayasooriya (2015) and Korkmiz and yilgor (2013), which indicate a positive relationship.…”

Analisis Hubungan Dinamis Instrumen Kebijakan Moneter di ASEAN

“…Disisi lan, jumlah uang beredar dapat didefiniskan nilai keseluruhan uang yang berada di tangan masyarakat. Jumlah uang beredar dalam arti sempit (narrow money) adalah jumlah uang beredar yang terdiri dari uang kartal dan uang giral (Dragos, Mihaela, & Stefan, 2013). Jumlah uang beredar disebut juga dengan penawaran uang.…”

“…Jika tingkat suku bunga tinggi, maka akan mengakibatkan kenaikan bunga pinjaman kredit bank yang dibutuhkan oleh peminjam dana, sehingga biaya produksi juga meningkat dan berujung pada harga jual produk yang meningkat pula. Inflasi yang meningkat mengakibatkan suku bunga meningkat, sebab jika terjadi inflasi maka setiap investor akan meminta imbal hasil minimum yang telah mampu mengganti besarnya inflasi (Dragos, Mihaela, & Stefan, 2013). Mankiw mengatakan bahwa jika tidak ada inflasi, tingkat bunga nominal akan sama dengan tingkat bunga riil, akan tetapi dengan adanya inflasi tingkat bunga riil akan lebih kecil daripada tingkat bunga nominal.…”