Relationship between monetary issuance and price level a global analysis with cointegration techniques (1995-2015)

Abstract

The relationship between monetary issuance and the price level is a topic that has beenstudied for a long time, due to the impact of this relationship in different economies worldwide.The objective of the research was to examine the effect of monetary issuance onthe price level during the period 1995-2015, for a broad group of countries, which weregrouped according to their per capita income level. The data were collected from theWorld Development Indicators (2016). The information was analyzed with cointegrationtechniques and using an error correction model. Finding a long-run equilibrium relationshipbetween monetary issuance and the inflation rate; while with the error correctionmodel, the existence of a relationship between variables in the short run was determined.In addition, the Granger causality test showed the existence of causality between the variables,which means that monetary issuance can affect the interest rate. Therefore, theremust be a continuous analysis and decision making of the monetary aggregates to maintainan adequate equilibrium of the price level, especially in the long term, which requires thestrengthening of the institutions in charge of the control of the variables analyzed.