Evaluating the impact of macroeconomic variables on the volume of money in SAARC member countries 2002-2022

Abstract

 While the impact of money supply growth on economic activity has been widely discussed in macroeconomic literature, this research takes a different approach. It examines how macroeconomic factors influence the money supply in SAARC member nations from 2002 to 2022. The data for this study, including interest rates, exchange rates, inflation, economic growth, and money supply, was sourced from the World Bank. The research employed the random effects model technique to test the findings, revealing some intriguing insights. For instance, in SAARC member nations, there is no statistically significant correlation between the money supply and the inflation rate. Similarly, no significant relationship was found between the money supply and economic growth in these countries. However, the study did uncover a negative correlation between interest rates and money supply among SAARC member nations. This suggests that as bank interest rates rise, the money supply and investments decrease. Furthermore, the effect of the exchange rate on the money supply was found to be significant at a 5% risk level. In conclusion, the study indicates that in SAARC member nations, the money supply may not be directly impacted by inflationary forces, as no significant correlation was observed between money supply and inflation. Additionally, contrary to the common belief that monetary expansion typically accompanies economic growth, the analysis showed that economic growth does not have a discernible effect on the money supply in these economies