Monetary Variables, Economic Growth and Monetary Policy in Nigeria
Abstract
Historically, monetary policy in Nigeria has been dominated by short term considerations. In the past few decades, monetary policy has bounced between short term and medium term considerations. Nigerian government might have tried to ensure some effectiveness in regulatory and supervisory mechanism of the entire monetary and financial ecosystem.
This paper measures the influence of monetary variables on economic growth in Nigeria. Subsequently, it tests money demand function in Nigeria. It employs Generalized Method of Moments (GMM) and Autoregressive Distributed Lag Model (ARDL) for the analysis, using annual data from 1989 to 2019. The results of the analysis show money supply (M2) as important in explaining economic growth in Nigeria. The result also shows negative effects of Nigerian foreign exchange policy on economic growth in Nigeria. The result of the money demand analysis shows that income is the most important variable that explains money demand in Nigeria, even more important than interest rate which shows insignificant result.
The paper recommends changes in Nigerian foreign exchange policy as the existing policies (especially, the policy somersault) are detrimental to economic growth. The paper also noted the importance of making money supply (M2) to be in tandem with overall economic growth agenda.
References
[2] Adefeso, H. and Mobolaji, H. I. 2010. The Fiscal-Monetary Policy and Economic Growth in Nigeria: Further Empirical Evidence, Pakistan Journal of Social Sciences, 7(2): 137-142.
[3] Adeyemi, O.J., Oseni, I.O. and Tella, S.A. 2020. Effects of Money Demand on Trade Balance in Nigeria. Acta Universitatis Lodziensis. Folia Oeconomica; Lodz, 351: 23-44. DOI: https://doi.org/10.18778/0208-6018.351.02
[4] Arewa, A. and Nwakanma, P.C. 2013. Money Supply and Velocity of Money in Nigeria: A Test of Polak Model. Journal of Management and Sustainability, 3(4): 136-150. DOI:10.5539/jms.v3n4p136
[5] Amassoma, D., Keji, S. and Emma- Ebere, O.O. 2018. Looking Inwards: Is Money Supply the Cause of Rising Inflation in Nigeria? Journal of Economic and Social Development, 5(1): 6-18.
[6] Augustina, M. O., Fagbeminiyi, F. F., Olusegun, O. and Folasade, A. B. 2010. Empirical Modelling of the Impact of Financial Innovation on the Demand for Money in Nigeria, International Research Journal of Finance and Economics, 58: 73-90.
[7] Bassey, N. E Udo, S. U. and Etim, O. U. 2017. Modelling the Demand for Money Function in Nigeria: Is There Stability? Bulletin of Business and Economics, 6(1): 45-57.
[8] Billi, B. M. 2009. Was monetary policy optimal during past deflation scares? FRBKC Economic Review, 94(3): 67-98.
[9] Bitrus, Y. P. 2011. The Demand for Money in Nigeria, European Journal of Business and Management, 3(6): 63-85.
[10] Doguwa, S. I., Olowofeso, O. E., Uyaebo, Stephen O. U., Adamu, I. and Bada, A. S. 2014. Structural Breaks, Cointegration and Demand for Money in Nigeria, CBN Journal of Applied Statistics, 5(1): 15-33.
[11] El-Rasheed, S., Abdullah, H. and Dahalan, J. 2017. Monetary Uncertainty and Demand for Money Stability in Nigeria: An Autoregressive Distributed Lag Approach, International Journal of Economics and Financial Issues, 7(1): 601-607.
[12] Fasanya, Onakoya and Agboluaje 2013. Does monetary policy influence economic growth in Nigeria? Asian Economic and Financial Review, 3(5): 635-646.
[13] Fisher, I. 1911. The purchasing power of money, New York, MacMillan.
[14] Gatawa, N. M., Abdulgafar, A. and Olarinde, M. O. 2017. Impact of Money Supply and Inflation on Economic Growth in Nigeria (1973-2013). IOSR Journal of Economics and Finance, l8(3): 26-37.
[15] George, C., Suoyai, E. and Boloekeye, M. 2018. Impact of Money Supply on Some Macroeconomic Variables in the Nigerian Economy. Journal of Business Management and Economic Research, 2(5): 32-46.
[16] Hansen, L.P. 1982. Large Sample Properties of Generalized Method of Moments Estimators, Econometrica, 50: 1029 – 1054.
[17] Hanson, J. L. 1978. Monetary Theory and Practice, London, Macdonald and Evans Ltd.
[18] Hicks, J. R. 1935. A suggestion for simplifying the theory of money, Economics, NS2, 1-19.
[19] Danladi, J., Awopetu, O.B. 2020. A Macroeconomic Analysis of the Demand for Money in Nigeria. Journal of Economics & Sustainable Development, 11(6): 41- 49. DOI: 10.7176/JESD/11-6-05
[20] Keynes, J. M. 1936. The General Theory of Employment, Interest and Money, New York, Harcourt Brace.
[21] Mankiw, N. G. 2007. Macroeconomics. Worth Publishers: New York.
[22] Melnick, R. 1995. Financial Services, Co-integration, and the Demand for Money in Israel, Journal of Money, Credit and Banking, 27(1): 140-153.
[23] Mishkin, F. S. 2013. The Economics of Money, Banking and Financial Markets, Boston, Pearson.
[24] Odularu, G. O. and Okunrinboye, O. A. 2009. Modeling the impact of financial innovation on the demand for money in Nigeria, African Journal of Business Management, 3(2): 039-051.
[25] Omotor, D. G. 2011. Structural Breaks, Demand for Money and Monetary Policy in Nigeria. Ekonomski Pregled, 62 (9-10): 559-582.
[26] Pesaran, M. Hashem, Yongcheol Shin, and Richard J. Smith. 2001. Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics 16: 289–326.
[27] Pesaran, M. Hashem, and Yongcheol Shin. 1999. An Autoregressive Distributed Lag Modelling Approach to Cointegration Analysis. In Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium. Edited by Steinar Strøm. Cambridge: Cambridge University Press.
[28] Shuaibu, M., Yusufu, M., Abdullahi, S. I., Shehu, K. K. and Adamu, M. B. 2021. What explains economic growth in Nigeria in the last three decades? – A dynamic modelling approach, East African Scholars Multidisciplinary Bulletin; 4(7): 75-84.
[29] Sulaiman, L. A. and Migiro, S. O. 2014. The nexus between monetary policy and economic growth in Nigeria: A causality test, Public and Municipal Finance, 3(2): 35-40.
[30] Tobin, J. and Golub, S. S. 1998. Money Credit and Capital. McGraw-Hill international.
[31] Tule, M. K., Okpanachi, U. M., Ogiji, P. and Usman, N. 2018. A Reassessment of Money Demand in Nigeria, CBN Journal of Applied Statistics, 9(1): 47-75.
[32] Ufoeze, L. O., Odimgbe, S. O., Ezeabalisi, V. N. and Alajekwu, U. B. 2018. Effect of monetary policy on economic growth in Nigeria: An empirical investigation, Economic Series, (1): 123-140.
*** National Economic Empowerment and Development Strategy (NEEDS), National Planning Commission, Abuja 2005.
The Copyright Transfer Form to ASERS Publishing (The Publisher)
This form refers to the manuscript, which an author(s) was accepted for publication and was signed by all the authors.
The undersigned Author(s) of the above-mentioned Paper here transfer any and all copyright-rights in and to The Paper to The Publisher. The Author(s) warrants that The Paper is based on their original work and that the undersigned has the power and authority to make and execute this assignment. It is the author's responsibility to obtain written permission to quote material that has been previously published in any form. The Publisher recognizes the retained rights noted below and grants to the above authors and employers for whom the work performed royalty-free permission to reuse their materials below. Authors may reuse all or portions of the above Paper in other works, excepting the publication of the paper in the same form. Authors may reproduce or authorize others to reproduce the above Paper for the Author's personal use or for internal company use, provided that the source and The Publisher copyright notice are mentioned, that the copies are not used in any way that implies The Publisher endorsement of a product or service of an employer, and that the copies are not offered for sale as such. Authors are permitted to grant third party requests for reprinting, republishing or other types of reuse. The Authors may make limited distribution of all or portions of the above Paper prior to publication if they inform The Publisher of the nature and extent of such limited distribution prior there to. Authors retain all proprietary rights in any process, procedure, or article of manufacture described in The Paper. This agreement becomes null and void if and only if the above paper is not accepted and published by The Publisher, or is with drawn by the author(s) before acceptance by the Publisher.