• Branka Topić-Pavković Faculty of Economics, University of Banja Luka, Bosnia and Herzegovina
  • Slaviša Kovačević Faculty of Economics, University of Banja Luka, Bosnia and Herzegovina
  • Drago Kurušić TKalem Company d.o.o. Banja Luka, Bosnia and Herzegovina



money supply, M2, inflation, economic growth, currency board, Bosnia and Herzegovina


The analysis of monetary variables and their impact on the economic growth rate has always been in the focus of economic research. In the broadest sense, economic theory distinguishes two basic views defined by the views of monetarists and Keynesians. Although the basic difference is reflected in the determination of price rigidity and money neutrality, specifics of modern economic systems shift the focus towards the positive influence of monetary on real variables. The aim of our research is to identify and quantify the impact of monetary variables on economic growth in Bosnia and Herzegovina. The research was conducted using data from the period 2000-2020. The paper starts with the hypothesis that money supply and inflation ultimately have a positive impact on the real economic growth in BiH. The money supply M2 and the annual inflation rate are taken as explanatory (monetary) variables in the research, while real growth is a dependent variable. The long-term relationship between monetary variables and real growth rates was tested, taking into account the specificity of the BiH monetary arrangement established in the form of a currency board. In order to prove the hypothesis, we applied econometric techniques such as VEC model, cointegration analysis, innovation analysis based on the impulse-responsive function, decomposition variance as well as a causality test. The research results showed the connection between the money supply and the inflation rate with the economic growth in BiH, the relation being positive and statistically significant in the long run. With this, we confirmed the initial hypothesis of the work.


Adaramola, A. O., & Dada, O. (2020). Impact of inflation on economic growth: evidence from Nigeria. Investment Management and Financial Innovations, 17(2), 1-13. DOI:10.21511/imfi.17(2).2020.01

Agbonlahor, O. (2014). The Impact of Monetary Policy on the Economy of United Kingdom: A Vector Error Correction Model (VECM). European Scientific Journal, 10(16), 19-42. DOI:10.19044/esj.2014.v10n16p%25p

Amiri, A. G., & Gang, Z. (2018). The impact of monetary policy on economic growth in America’s economy using a new approach tvp-favar.Amazonia Investiga, 7(15), 58- 68. Retrieved from:

Asongu, S. A. (2014). A note on the long-run neutrality of monetary policy:. European Economics Letters, 3(1), 1-6. Retrieved from:

Asteriou, D., & Hall, S. G. (2011). Applied Econometrics. Hamphsire, UK: Palgrave Macmillan.

Baltagi, B. H. (2008). Econometrics. Berlin Heidelberg, Germany: Springer-Verlag.

Barro, R. J. (1977). Unanticipated Money Growth and Unemployment in the United States. The American Economic Review, 67(2), 101-115. Retrieved from:

Barro, R. J. (1978). Unanticipated Money, Output and the Price Level in the United States. Journal of Political Economy, 86(4), 549-580. DOI:10.1086/260699

Barro, R. J. (2013). Inflation and Economic Growth. Annals of Economics and Finance, 14(1), 85-109. Retrieved from:

Beker, E. (2006). Foreign exchange arrangements - from extreme to “normal”. Panoeconomicus 53(1), 31-49, ISSN 1452-595X.

Bernanke, B. S., & Mihov, I. (1998). Measuring monetary policy. The Quarterly Journal of Economics, 113(3), 869-902. DOI:10.1162/003355398555775

Blinov, S. (2017). Inflation and economic growth. Journal of Economics Library, 4(3), 345-358. DOI:10.1453/jel.v4i3.1381

Bozkurt, C. (2014). Money, Inflation and Growth Relationship: The Turkish Case. International Journal of Economics and Financial Issues, 4(2), 309-322. Retrieved from:

Bullard, J. R. (1999). Testing long-run monetary neutrality propositions: lessons from the recent research. Federal Reserve Bank of St. Louis Review, 81(6), 57-77. DOI:10.20955/r.81.57-78

Calvo, A. G. & Reinhart, M. C. (2000). Fixing for Your Life, National Bureau of Economic Research, Work Paper 8006.

Central Bank of Bosnia and Herzegovina. (2022). Statistics. Retrieved February 5, 2022, from Central Bank of Bosnia and Herzegovina:

Cover, J. P. (1992). Asymmetric Effects of Positive and Negative Money-Supply Shocks. The Quarterly Journal of Economics, 107(4), 1261-1282. DOI:10.2307/2118388

Demirgüç-Kunt, A., & Maksimovic, V. (1998). Law, Finance and Firm Growth. The Journal of Finance, 53(6), 1839-2273. DOI:10.1111/0022-1082.00084

Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74(366), 427-431.

Dickey, D. A., & Fuller, W. A. (1981). Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root. Econometrica, 49(4), 1059-1072.

Dingela, S., & Khobai, H. (2017). Dynamic Impact of Money Supply on Economic Growth in South Africa. An ARDL Approach. MPRA Paper 82539. Retrieved from:

Dušanić, J., & Špirić, N. (2009). Novac. Banja Luka; Bosna i Hercegovina: Ekonomski fakultet

Enders, W. (2014). Aplied Econometric Time Series. New Jersey: John Wiley & Sons, Inc.

Evans, P. (1996). Growth and the Neutrality of Money. Empirical Economics, 21, 187- 202. DOI:10.1007/BF01205499

Frank, D. (2004). How Currency Boards Collaps - The Case of Argentina. Seminar Paper, Institute for Foreign Trade and Payments and European Integration. Basel, Switzerland: Economics Department, University of Basel. Retrieved from:

Friedman, M. (1968). The role of monetary policy. The American Economic Review, 58(1). Retrieved from:

Friedman, M., & Schwartz, A. J. (1963). Money and business cycles. Review of Economics and Statistics, 45(1), 32-64. DOI:10.2307/1927148

Frydman, R., & Rappoport, P. (1987). Is the Distinction between Anticipated and Unanticipated Money Growth Relevant in Explaining Aggregate Output? The American Economic Review, 77(4), 693-703. Retrieved from:

Galí, J. (2008). Monetary policy, inflation and business cycle: An Introduction to the New Keynesian Framework. Oxfordshire, UK: Princeton University Press.

George, C., Suoyai, E., Tema, L., Boloekeye, & Matthew. (2018). Impact of Money Supply on Some Macroeconomic Variables on The Nigerian Economy. Journal of Business Management and Economic Research, 2(5), 32-46. DOI:10.29226/TR1001.2018.32

Granger, C. W. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica, 37(3), 424-438. DOI:10.2307/1912791

Granger, C. W. (1988). Some recent development in a concept of causality. Journal of Econometrics, 39(1-2), 199-211. DOI:10.1016/0304-4076(88)90045-0

Granger, C. W., & Newbold, P. (1974). Spurious Regressions in Econometrics. Journal of Econometrics, 2, 111-120. DOI:10.1016/0304-4076(74)90034-7

Granger, C. W., & Newbold, P. (1976). Forecasting Transformed Series. Journal of the Royal Statistical Society: Series B, 38(2), 189-203.

International Monetary Fund. (2021). World Economic Outlook Database. Retrieved February 5, 2022, from International Monetary Fund:

Lewis, M. K., & Mizen, P. (2000). Monetary Economics. Oxford, UK: Oxford University Press.

Kausar, R., Bhatti, M. K., & Gull, S. (2020). An Effect of Money Supply on Economic Growth: Evidence from Pakistan. Journal of Contemporary Macroeconomic Issues, 1(1), 34-43. Retrieved from:

King, R. G., & Levine, R. (1993). Finance and Growth: Schumpeter Might be Right. The Quarterly Journal of Economics, 108(3), 717-737. DOI:10.2307/2118406

Kovačić, Z. J. (1995). Analiza vremenskih serija. Beograd, Srbija: Univerzitet u Beogradu Ekonomski fakultet.

Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688-726. Retrieved from:

Lu, X., Guo, K., Dong, Z., & Wang, X. (2016). Financial development and relationship evolvement among money supply, economic growth and inflation: a comparative study from the U.S. and China. Applied Economics, 49(10), 1032-1045. DOI:10.1080/00036846.2016.1210776

Mahara, & Singh, T. (2021). An Empirical Investigation Between Money. Quest Journal of Management and Social Sciences, 3(1), 23-39. DOI:10.3126/qjmss.v3i1.37588

Mankiw, G. N., & Taylor, M. P. (2007). Macroeconomics (European Edition). Basingstoke, UK: Palgrave Macmillan.

McCandless, G. T., & Weber, W. (1995). Some monetary facts. Quarterly Review, 19, 2-11. DOI:10.21034/qr.1931

Mervyn, L., & Mizen, P. (2000). Monetary economics. Oxford, UK: Oxford University Press.

Mishkin, F. S. (1982). Does Anticipated Monetary Policy Matter? An Econometric Investigation. Journal of Political Economy, 90(1), 22-51. DOI:10.1086/261038

Nogueira, R. (2009). Is monetary policy really neutral in the long-run? Evidence for some emerging and developed economies. Economics Bulletin, 29(3), 2432-2437. Retrieved from:

Peter, D., Kanda, D., Norregaard, J., Slack, G., Petrova, I., Wandwasi, N., & Zener, J. (2005). Bosnia and Hercegovina, Selected Economic Issues. IMF Working Paper May. DOI:10.5089/9781451977783.002

Precious, C., & Palesa, M.-K. (2014). Impact of Monetary Policy on Economic Growth: A Case Study of South Africa. Mediterranean Journal of Social Sciences, 5(15), 76-84. DOI:10.5901/mjss.2014.v5n15p76

Romer, D. (2012). Advanced Macroeconomics. New York, NY, US: McGraw-Hill.

Roubini, N. (1998). The Case Against Currency Boards: Debunking 10 Myths about the Benefits of Currency Boards. New York, NY, US: Stern School of Business, New York University

Sequeira, T. N. (2021). Inflation, economic growth and education expendituree. Economic Modelling, 95, 1-12. DOI:10.1016/j.econmod.2021.02.016

Srithilat, K., & Sun, G. (2017). The Impact of Monetary Policy on Economic Development: Evidence from Lao PDR. Global Journal of Management and Business Research, 17(2), 9-15. Retrieved from:

Stock, J. H., & Watson, M. W. (2020). Introduction to Econometrics. London: Pearson Education Limited.

Takahashi, F. (1971). Money Supply and Economic Growth. Econometrica, 39(2), 285- 303. DOI:10.2307/1913346

Toda, H. Y., & Phillips, P. C. (1993). The spurious effect of unit roots on vector autoregressions: An analytical study. Journal of Econometrics, 59(3), 229-255. DOI:10.1016/0304-4076(93)90024-Y

Toda, H. Y., & Yamamoto, T. (1995). Statistical inference in vector autoregressions with possibly integrated processes. Journal of Econometrics, 66(1-2), 225-250. DOI:10.1016/0304-4076(94)01616-8

Topić-Pavković, B. (2014). Possible tendencies of BiH monetary policy in encouraging economic growth.Acta Economica, 12(20), 213-241. DOI:10.7251/ACE1420213T

Walsh, C. E. (2003). Monetary theory and policy (2 ed.). Cambridge, Massachusetts, US: The MIT Press.

White, W. R. (2013). Is monetary policy a science? The interaction of theory and practice over the last 50 years. Globalization and Monetary Policy Institute working paper, 155. Retrieved from:




How to Cite

Topić-Pavković, B. ., Kovačević, S. ., & Kurušić, D. . (2022). MONEY SUPPLY, INFLATION AND ECONOMIC GROWTH IN BOSNIA AND HERZEGOVINA: AN EMPIRICAL ANALYSIS . Acta Economica, 20(36), 89–110.



Original Scientific Papers