Since the mid-nineteen fifties, two opposing schools of development thought, one known as the monetarist and the other as structuralist, have been engaged in a debate regarding the principal causes of inflation. The monetarists believe money supply is the prime cause of inflation, while the structuralists contend that inflation is a consequence of structural rigidities in developing economies and that inflation is a necessary concomitant of the major efforts launched to induce growth and development in poorer nations. In this study we have analyzed data from 1958 to 1985 for ten (10) industrial and agricultural economies to examine our hypothesis that it is the level and nature of industrialization and maturity in the financial sectors which explain divergent empirical evidence others have found in their studies. Our evidence indicates money supply is endogenous in less-developed nations while it is exogenous in the industrial economies and antecedent to inflation. In light of our findings, we suggest the IMF policy prescriptions for less-developed economies are not likely to be effective or relevant in such nations until their financial structures and levels of industrialization have improved.
Abdul Momen (Tue,) studied this question.