TESTING NEUTRALITY OF MONEY BY EXAMINING THE RELATIONSHIP BETWEEN MONEY, PRICE AND OUTPUT IN SOMALIA

ABSTRACT
In this paper, the relationship between money supply, price and output in Somalia have been
examined. The study is based on the well-known quantity theory of money applying the OLS
method. Annual time series data of the study variables for the period 1970-2010 were used in the
analysis. The results indicate that there is positive relationship between money supply and output
growth which is consistent theoretically with the monetarist’s view. Whereas the price level
(inflation) affects the output negatively in Somalia.
Key Words: Money supply, Output, Somali Economy, Quantity Theory of Money