The Long–Run Relationship Between Money Supply, Real GDP, and Price

The long-run relationships between three macroeconomic variables (real Gross Domestic Product (GDP), money supply (MS) and price level (CPI)) have been examined for the Sudan economy using annual data over the period 1960 to 2005.To explore the short-run direction of causality between GDP, MS and CPI, Granger Causality test has been applied and in order to investigate the existence of long-run relationship, co-integration analysis has been employed. The direction of causation between real GDP and prices was found to be uni-directional from real GDP to CPI without any feedback. Regarding the causal relationship between money and prices, the analyses suggests that the causation runs from money supply to prices, but price level does not causes money supply. Finally, there is no causality between real GDP and money supply in the case of Sudan during the period 1960 – 2005. Further, the co-integration analysis established that the real GDP, money supply and CPI were found to be co-integrated suggesting a existence of long-run relationship