The dynamic interaction mechanisms between financial depth and inflation in Libya(An econometric study during the period 1990-2020)

Abstract

This study aims at measuring the impact of financial depth on inflation in Libya the period from 1990 to 2020 based on the VAR model (SIMS, 1981). The study found that there is no long-term cointegration relationship between money supply and inflation. However, it identified a short-term cointegration relationship between money supply and inflation at a 5% significance level. Additionally, the study showed that money supply has a causal relationship with inflation, as money supply was found to cause inflation with a significance level of 0.0244. The study also revealed that a 1% structural shock in the money supply would have a positive and significant effect on inflation in the short term, as well as a positive and significant effect on the money supply itself in the short term.