Inflation persistence and growth in seven emerging Islamic economies

Abstract

We examine inflation persistence and gross domestic product growth for a group of seven Islamic economies from 1980–2009 using World Bank and International Monetary Fund data. Although there is a substantial body of literature on the impact of money supply on the economies of industrial countries, there is not nearly as much study done on the role of monetary policy as a stabilisation tool in developing nations, particularly in Middle Eastern countries. This study will shed some light on the relationship between money and economic activities in seven Islamic countries and whether monetary authorities can function effectively in their formulation and implementation of monetary policy. We find that money supply growth is correlated with inflation persistence, and study other factors’ effects on both. Also, the relationship between money supply and economic growth is tested with regard to additional factors which demonstrate that money supply, while affecting growth, is not the dominant factor.