Monetary Transmission Efficiency and Real Growth: Panel ARDL-PMG Study of OECD Economies

Abstract

This paper examines the conditions under which monetary expansion can stimulate real economic growth without generating persistent inflationary pressures by combining macroeconomic analysis with a conceptual framework inspired by econophysics and thermodynamics. The central hypothesis is that monetary expansion supports real growth when wage dynamics remain aligned with labor productivity, whereas persistent wage–productivity misalignment redirects monetary impulses toward inflation. The hypothesis is tested using a panel autoregressive distributed lag model estimated by the Pooled Mean Group (PMG) approach on quarterly data for 15 OECD (Organization for Economic Co-operation and Development) economies with independent monetary policy over 2002–2025. Real GDP is modeled as a function of broad money, wages, and labor productivity, allowing heterogeneous short-run dynamics and a common long-run relationship. Results indicate a stable long-run equilibrium in which broad money and labor productivity are positively associated with real GDP, whereas wages exert a negative long-run effect consistent with a cost-pressure mechanism. Short-run dynamics show significant adjustment toward equilibrium, with productivity displaying the strongest immediate growth effect and monetary effects emerging more gradually. The findings suggest that inflation is not an inevitable consequence of money creation but largely reflects inefficient monetary transmission arising from wage–productivity misalignment.

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