Impact of Money Supply on Some Macroeconomic Variables on The Nigerian Economy

Abstract

The link between aggregate money supply, inflation and economic growth has raised a lot of scholarly debate in the field of economics and finance. The study sets to investigate the impact of money supply on macroeconomic variables in Nigeria from 1985 to 2016. The specific objectives of the paper were to ascertain the impact of narrow money supply, broad money supply, inflation rate, and exchange rate on real gross domestic product on one hand, and narrow money supply, broad money supply and exchange rate on consumer price index in Nigeria. The ex post facto research design and descriptive statistics were used to observe the variables in retrospect. To achieve the objectives of the study, two models were built to mimic the tread. To avoid spurious results, the Augmented Dickey Fuller test was used to solidify the data, which integrated at first difference I(1). The ordinary least square technique was employed to determine the magnitude and direction of the variables in the models. It emerged that narrow money supply has a positive and significant impact on inflation and real gross domestic product; conversely, broad money supply does not have any significant impact on inflation and real gross domestic product Empirical evidence further showed that exchange rate has an insignificant impact on inflation and real gross domestic product. Inflation rate on the other hand, has an inverse and statistically insignificant impact on real gross domestic product in Nigeria. Ceteris Paribus, the results suggest that economic growth and inflation is a function of money supply (narrow money supply) and exchange rate in Nigeria. The paper recommends that efforts should be put in place to better the exchange rate between the naira and other currencies. This will help avoid the imported inflationary pressure on goods and services in the country.

Macroeconomic Variables Affecting Money Supply: A Study of Nepalese Economy

“…This confirms significant relationships between GDP growth rate, inflation rate, exchange rate with USD, deposit rate, and lending rate with money supply.Our findings indicate a significant relationship between money supply and GDP growth rate (RGDP), in agreement withGeorge et al (2018). This aligns with the negative correlation observed in previous research byIfionu and Akinpelumi (2015).…”

Trade Balance, Exchange Rate and Money Supply in Nigeria: Growth Implications and Lesson for African Countries

“…Various studies support the impact of these factors (see Karahan, 2020;Antwi et al, 2020;Fatbardha, 2020;Koirala, 2018;Achouak et al, 2018;Rasaqque et al, 2017;Fassil, 2017;Eze & Atuma, 2017;Ingebire et al, 2020;Abdul et al, 2018;Hussain & Zafar, 2018;Ditim et al, 2018;Diemante et al, 2020;Onakoya et al, 2019;Hicham, 2018;George et al, 2018;Adeyemi et al, 2020;Ezeaku et al, 2018;Anoke et al, 2016;Sushil, 2020;Abille & Mpure, 2020;Cambodia et al, 2018;Ibi et al, 2019;Owolabi & Adegbite, 2014). Therefore, this study examines the impact of trade balance, exchange rate, and money supply on economic growth, focusing on Nigeria's economy, and aims to provide policy recommendations for other African countries.…”

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“…The research confirmed the long-term link between monetary variables and economic growth. George (2018), based on research conducted for the period from 1985 to 2016 on the example of Nigeria, concludes that inflation has an inverse effect on economic growth. Sequeira (2021) confirms that inflation has a negative impact on economic growth.…”