Import Response And Inflationary Pressures In The New Economy: The Quantity Theory Of Money Revisited

Abstract

Contending with the rationale for rate increases to counter inflationary pressures, this study revisits the quantity theory of money and the equation of exchange developed in the sixteenth century by the likes of John Locke, John Law, etc., and popularized over the years by economists, such as Adam Smith, David Ricardo, and Irvin Fisher to predict the response of some variables, especially imports of goods and services, on the rate of inflation.  The vector autoregression (VAR) process was used to estimate the model.  Results show that import is significant in its impact in the reduction of the growth rate of CPI inflation, thereby dampening the weight of inflationary pressures on economic policy formulations. Because of present economic environment, coupled with author’s fulfilled seven-year prediction, the urgency of incorporating this into our economic policy determination cannot be overemphasized.