Inflation, Money and Economic Growth in Cameroon

Henri Atangana Ondoa,Henri Ngoa Tabi

doi:10.5430/ijfr.v2n1p45

Henri Atangana Ondoa, Henri Ngoa Tabi

Open Access

https://doi.org/10.5430/ijfr.v2n1p45

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Abstract

For some decades now, anti-inflationary monetary policies have been adopted by the Central bank of the CEMAC zone in view of sustaining economic growth. Despite the low level of inflation recorded, the economic growth of Cameroon remains fragile. The objective of this article is to analyse the relationship between economic growth, inflation and money in circulation using a VAR model for the period 1960-2007. It is shown that increase in money supply increases growth and that growth causes inflation; however, an increase in money supply does not necessarily increase inflation.

Highlights

The view that low inflation is an important requirement for sustained economic growth became widely accepted after the great depression in the 1930s
Low inflation is always considered as an objective of economic policy, it has been shown that volatility reduces economic growth and is worthy of our attention (Klomp and Haan, 2009)
One can observe that an increase in money supply can boost growth and that inflation is not a major determinant of economic growth

Summary

Introduction

The view that low inflation is an important requirement for sustained economic growth became widely accepted after the great depression in the 1930s. Contrarily to Tobin (1965), the global volume of capital is reduced during a period of hyperinflation (Mckinnon, 1973; Shaw, 1973); the monetary sphere ameliorates overall productivity of factors when the inflation rate is low. In the short run, faster real growth may be associated with more rapid inflation. Often, this is because strong growth is the result of a rise in aggregate demand that causes real output to increase at the same time as it bids up prices. If inflation has a long-run influence on output (in levels or growth rates), it is probably because it affects aggregate supply rather than demand (Motley, 1994)

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