Research on the linkage relationship between different levels of money supply and economic growth based on VAR model

Abstract

This article uses a stable multivariate time series to establish a VAR(2) model, selects the annual data from 1990 to 2018, and has undergone stationarity test, Granger causality test and impulse response analysis. The research conclusions are as follows: (1) There is a two-way Granger causality between broad money supply (M2) and economic growth; (2) Economic growth has a profound impact on the country's money supply in the short term; (3) The money supply (especially M2) has a significant impact on economic growth in the short term. In the current economic situation, money supply is still an ideal intermediary target for monetary policy, and corresponding policy recommendations are made accordingly.