Money Supply and Prices Relation in Albanian Economy

Abstract

Paper aims to examine the relationship between money, represented by M1, and prices, represented by Consumer Price Index (CPI) in Albania. Monthly data are used from 2000:M1 to 2015:M1. Particularly, paper represents the relation of these variables in different economies similar to Albanian economy. The main part includes an econometric model, implementation of Johansen Co-integration Test which will correctly disclose the relationship of M1 and Inflation. In the last part of the paper, as it was forecasted the empirical results reveal positive relation between the variables, indicating that increase in money supply would consequently lead to an increase in inflation.

DOI: 10.5901/ajis.2015.v4n3s1p577