Evidence from the European Union on Testing the Kumara Swamy Theorem of Inflationary Gap

Journal of Financial Management And Analysis, Vol. 26 (1), 2013

Posted: 3 Sep 2013

See all articles by Larry Bauer

Larry Bauer

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Alex Faseruk

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Ian Glew

Memorial University of Newfoundland (MNU) - Faculty of Business Administration

Date Written: August 27, 2013

Abstract

This paper empirically tests the Kumara Swamy Theorem of the Inflationary Gap for 27 European Union countries over the period 1999-2011. The study obtained data from the World Bank’s World Development Indicators database for each country’s money supply, Gross National Income (GNI) and Consumer Price Index (CPI), as well as the Bank of England for the United Kingdom and the comparable agencies in Norway and Sweden. Results were compared to the seminal works of Swamy (1982) and (2009) that tested the theorem on the Nigerian economy, as well as recent studies by Lazaridis and Livanis (2010) for the Cypriot and Greek economies, Bauer and Faseruk (2012) for the Canadian economy and Faseruk, Bauer and Glew (2012) for the countries in the North American Free Trade Agreement. In the current study, the Kumara Swamy Theorem of the Inflationary Gap has provided notable explanatory power for the relationship between the growth of the money supply and real GNP in terms of direction but not necessarily in terms of magnitude. In order to explain differences, this paper examines subdivided samples for various sub-groupings, such as Portugal, Ireland, Italy, Greece and Spain, as well as former COMECON countries. This paper agrees with the insight from Faseruk, Bauer and Glew (2012) that the theorem is best understood as a long-term average and to disregard short-term fluctuations. Graphical evidence demonstrates when short-term fluctuations in the inflationary gap occurred and provides various explanations based on market data.

Keywords: Inflationary gap, European Union, Kumara Swamy Theorem

JEL Classification: C82, E31, E52, E58

Suggested Citation

Bauer, Larry and Faseruk, Alex and Glew, Ian, Evidence from the European Union on Testing the Kumara Swamy Theorem of Inflationary Gap (August 27, 2013). Journal of Financial Management And Analysis, Vol. 26 (1), 2013, Available at SSRN: https://ssrn.com/abstract=2319463

Larry Bauer

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, NL A1B 3X5
Canada
709-864-8512 (Phone)

Alex Faseruk (Contact Author)

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

Ian Glew

Memorial University of Newfoundland (MNU) - Faculty of Business Administration ( email )

St. John's, Newfoundland A1B 3X5
Canada

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
322
PlumX Metrics