Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/114573
Authors: 
Georgantopoulos, Andreas G.
Tsamis, Anastasios D.
Year of Publication: 
2012
Citation: 
[Journal:] International Journal of Economic Sciences and Applied Research [ISSN:] 1791-3373 [Volume:] 5 [Year:] 2012 [Issue:] 3 [Pages:] 115-128
Abstract: 
This paper investigates the short run as well the long run relationships between money supply, inflation, government expenditure and economic growth by employing the Error Correction Mechanism (ECM) and Johansen co-integration test respectively for the case of Cyprus using annual data from 1980 to 2009. Collectively, empirical results imply that public spending promotes economic development in Cyprus. However, deficit financing by the government causes more liquidity effects but also inflationary pressure in the economy. Results show that inflation negatively effects economic growth probably due to adverse supply shock. Money supply should be allowed to grow according to the real output of the economy but excess growth of money causes inflationary pressure in case of Cyprus. Therefore, this paper suggests that the government should control its current expenditure that stimulates aggregate demand and to focus more on development expenditure which stimulates aggregate supply and increases real output level.
Subjects: 
Economic development
Co-integration
Granger causality
Deficit financing
JEL: 
C32
E60
O11
Document Type: 
Article

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