Causality Between Money Supply And Real Economic Growth In Algeria: An Econometric Study For The Period 1990-2022

This study examines the causal relationship between the money supply (M2) and Algeria's real economic growth rate (RGDP) from 1990 to 2022. Additionally, it aims to validate the assumptions of Keynesian theory and Friedman's monetary theory. The Augmented Dickey-Fuller test showed that M2 was stationary at the level, while RGDP was non-stationary, becoming stationary at their first difference. Using the two-step Engel-Granger model, the cointegration analysis revealed a positive relationship. We ensured the residuals were stationary and used the Error Correction Model (ECM) to avoid spurious estimation. A causality test was conducted on the two variables in both the short and long term. The results indicated a significant bidirectional effect between changes in RGDP and the money supply at a significance level of less than 10%. This finding validates the Keynesian concept that augmenting the money supply can directly impact the economy and production.