Abstract:
In modern economy, money stocky is identified as a mechanism of economic
growth of all nations. The purpose of this study was to test the relationship among the money
stocky and economic growth of Sri Lanka. The time series data of the gross domestic product
and the money stockused in this study were collected from the sample period from 1959 to
2013. The Augmented Dickey Fuller (ADF) and Philips Perron tests were used to test the
stationarity of the time series variables, and then the Augmented Engel – Granger (AEG) testing
approach was employed to test the relationship between the variables.
Based on the Augmented Engel – Granger (AEG) testingresults, this study found that the money
stock was positively impacting on economic growth of Sri Lanka. The partial p – Value of the
money stock was less than 1% and the value of R- squared of this testing model was 0.85,
which was higher than Durbin Watson statistic. In the meantime, the absolute value of the
Augmented Dickey Fuller (ADF) test of the residual of the estimated model was stationary at 5%
critical value. So, the conclusion was that the money stock and economic growth of Sri Lanka
were maintained the relationship between them at I(0) level form.
