Abstract
This study aims to achieve two main objectives; conducting a theoretical analysis to find formula has ability to describe the factors affecting the money supply in Libya, and conducting an empirical analysis to estimate the key factors affect money supply in Libya using ARDL bounds testing approach to cointegration and stability tests. Time series data were used from 2013 Q1 to 2020 Q4 for statistical analysis. The results of long-run and short run ARDL indicate that claim on government with CBL has a positive effect on narrow money supply while exchange rate of the Libyan dinar in the black market has a negative effect. Based on the results of this study, there are two reasons that impose the Central Bank of Libya to expand the money supply during the study period: i) to meet the demand for money as a result of an increase in the general price level and the inability of commercial banks to provide cash liquidity by printing new banknotes, ii) to finance the public budget deficit by lending to the government.