ABSTRACT
The review of empirical literature on money, inflation and economic growth in Chapter 3 revealed that although the relationship between inflation and economic growth is weak and complex, high and unstable inflation rates can retard economic growth. It also revealed that there is an almost linear relationship between the growth of money and the rate of inflation. Chapter 5 examined the role of monetary policy in stabilisation. It was demonstrated that the demand management role of monetary policy is limited in developing countries and that an active monetary policy after a negative supply shock may create sustained inflation. Therefore the primary role of monetary policy in developing countries is to maintain price stability for economic growth.
