Relationship between Inflation and Economic Growth in Malaysia An Econometric Review

One of the most important basic objectives for any countries is to sustain high economic growth together with low inflation. However, there has been considerable debate between structuralists and monetarists on the nature of the inflation and economic growth relationship over the past few decades. The structuralists believe that inflation is essential for economic growth, where as the monetarists see inflation as detrimental to economic growth. Some findings say there is significant short-run relationship but not in the long-run. Considering all types of findings this paper investigates the same issue in the economy of Malaysia. The data are taken from IFS, yearly data and methodologies are ADF, PP Unit Root Test, Vector Error Correction, Vector Auto Regression, Impulse response function and Variance Decomposition, etc. According to this study there exist short-run causality between the variables and direction of causality is from inflation to economic growth but in the long-run economic growth Granger Causes inflation.