The Impact of Money Supply on Inflation in Sudan during the Period (1990–2022)

Abstract

This study aims to investigate the long- and short-term relationship between money supply (M2) and inflation in Sudan during the period (1990-2022), an era characterized by chronic inflation and deep structural challenges. The problem addressed in this study stems from fundamental imbalances in Sudanese macroeconomic indicators that affect aggregate demand and supply. The inflation rate is considered one of the most prominent of these indicators and the one with the greatest impact on economic stability, which calls for determining the nature and strength of the impact of monetary policy on inflation under the exceptional economic conditions that the country has experienced. The study's hypotheses are based on the theoretical foundations of monetary economics and contemporary scientific literature, assuming a statistically significant positive relationship between the money supply and the inflation rate, a significant effect of the money supply on inflation in both the short and long term, the existence of a long-term equilibrium relationship between the two variables, and the estimated model being characterized by structural stability and consistency. Using the augmented time series regression (ARDL) methodology and the error correction model (ECM) on annual data, the ARDL boundary test showed a long-term cointegration relationship, where a 1% increase in M2 leads to a significant increase of 1.49% in long-term inflation, providing strong support for the quantity theory of money in the Sudanese context. The ECM coefficient of -0.40 indicates a correction of about 40% of the imbalances annually, indicating a relatively slow dynamic adjustment. Diagnostic and stability tests confirmed the robustness and internal validity of the model, and the results highlight the monetary nature of inflation in Sudan, which is attributed to structural constraints, limited monetary policy tools, and the dominance of fiscal deficits. Accordingly, the study calls for comprehensive monetary reforms, including.