Abstract
In this short study, the author presents empirical evidence regarding the relation of money growth and its effect on inflation, for the case of Bolivia. The text describes the situation of the country analysed in terms of monetary policy after one of the worst cases of hyperinflation ever; empirical evidence is presented through two independent estimations, one following the Cochrane-Orcutt procedure, and the other following a Box-Jenkins procedure (ARMA process) that confirms the relation between money growth and inflation in Bolivia using data for the years 1998 to 2010. Evidence confirms the impact of money growth on inflation; the evidence suggests that the level of current inflation in Bolivia has a strong relation with the level of money quantity of two past periods on average. Moreover, the results show that monetary expansion affects the level of inflation in even when controlling for time impacts. The author also tries to assess the impact that a period of high inflation has in the development of growth policies for the case of Bolivia.
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