Esor Egbe Ibi, Basil Richard Eja, C. M. Ojong


With the large observed discrepancies between money supply target and outcome overtime in Nigeria despite the assertion that money supply growth is independently and exogenously determined by the central bank, this study principally centred on the effect of selected macroeconomic variables on money supply in Nigeria, using annual time series data from 1970-2011. The main objectives of the study were to ascertain how changes in selected macroeconomic variables affect money supply growth as well as testing the money supply endogeneity hypothesis in Nigeria. To achieve the above objectives, the study employs the Augmented Dickey Fuller (ADF) and Philip-perron (PP) unit root test, cointegration test, Granger causality test and Error correction mechanism (ECM) in testing and in the estimation of the relevant equations. The results of the cointegration tests showed that there is a long-run relationship among the macroeconomic variables in the model. The results of the short-run and the long-run estimates revealed that income (GDP), credit to the private sector (CPS), net foreign asset (NFA), government expenditure (GEXP), consumer price index (CPI), interest rate (IR) and exchange rate (EXCH), all have both short-run and long-run significant effect on money supply. Furthermore, the results of the granger causality test showed that money supply is endogenously determined in Nigeria; thereby supporting the post-Keynesian postulation that money supply is endogenous. This indicates that macroeconomic variables had greater influence in determining the rate of money growth in Nigeria. From the findings, it was recommended that in order to achieve a sustainable level of money supply growth that will be consistent with the projected growth rate of the economy, more credit should be allocated to the core private sector of the economy. To achieve this, there is need for the monetary authorities to make credit, cheaper via reduction in lending rate. It is also recommended that monetary authorities should incorporate proactive and strategic analysis of the feedback effect of movement of key macroeconomic variables on money supply growth in it formulation of monetary policy and money supply targeting in Nigeria.


JEL: E51, E41, E62


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money supply, net foreign assets, interest rate, exchange rate, government expenditure, consumer price index, credit to the private sector

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DOI: http://dx.doi.org/10.46827/ejefr.v0i0.530


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