The Upshot of Money Supply and Inflation in Nigeria

Open access


This study empirically investigates the upshot of money supply on inflation in Nigeria using annual time series data spanning from 1970 to 2016. Co-integration and Autoregressive Dynamic Error Correction Model (ADLECM) approach was utilized. The results showed that money supply does not considerably influence inflation both in the long and short run possibly because the country is in recession. The ECM has the correct sign of negative and it is significant meaning that about 21% of the errors are corrected yearly. The Granger causality outcome demonstrates that, there is no causality between money supply and inflation in Nigeria within the study period and vice-versa. The implication of this is often that there are different economic conditions which are key determinant of inflation in Nigeria. The study recommends that the government should diversify the economy, minimize importation by encouraging local production of products and services. The CBN should guarantee an exchange rate policy that is essentially determined by the state of the economy and not by speculators being a net importation economy. Also, the CBN should look inwards into the current interest rate and see how it can be regulated in such a way that will encourage private and foreign investors to be able to invest in the country. This in turn, successively increases income, infrastructure development and economic growth at large.

If the inline PDF is not rendering correctly, you can download the PDF file here.

  • Ahmed A. E. M. and S. Z. Suliman (2011); “The Long-Run Relationship between Money Supply Real GDP and Price Level; Empirical Evidence from Sudan”. Journal of Business Studies Quarterly Vol. 2 No. 2 Pp 68-79.

  • Ajisafe R.A & Folorunso B.A. (2002); The relative effectiveness of fiscal and monetary policy in macroeconomic management in Nigeria; African Economic and Business Review vol.3 no.1.

  • Akinbobola T. O. (2012); The dynamics of money supply exchange rate and inflation in Nigeria; Journal of Applied Finance and Banking; vol.2 no. 4 Pp 117-141.

  • Akinnifesi E.O. (1984). Inflation in Nigeria: Causes Consequences and Control. CBN Bull. 1(3):61-75.

  • Al-Fawwaz T. M. and K. M. Al-Sawai’e (2012); “Output Money and Prices: The Case of Jordan”; Journal of International Business Research Vol. 5 No. 12 Canadian Center of Science and Education.

  • Babatunde M.A. and Shuaibu M.I. (2011); Money Supply Inflation and Economic Growth in Nigeria; Asian-African Journal of Economics and Econometrics; Vol. 11 No. 1 2011: Pp 147-163.

  • Bakare A.S. (2011); An Empirical Study of the Determinants of Money Supply Growth and its Effects on Inflation Rate in Nigeria; Journal of Research in International Business and Management; Pp 124-129.

  • Bello M.Z. M. A. Saulawa (2013) Relationship between Inflation Money Supply Interest Rate and Income Growth in Nigeria 1980-2010: An Empirical Investigation. Journal of Economics and Sustainable Development 4(8) 23 – 39.

  • Bozkurt C. (2014); “Money Inflation and Growth Relationship: The Turkish Case” International Journal of Economics and Financial Issues; Vol. 4 No. 2 Pp 309.

  • Cagan P (1956); “The Monetary Dynamics of Hyperinflation”; Milton Friedman (ed) Studies in the Quantity Theory of Money; University Press Chicago.

  • Central Bank of Nigeria 2010; CBN Publications Statistical bulletin; Abuja: Central Bank of Nigeria; vol. 4; No. 5

  • Chuku A.C. (2009); “Measuring the Effect of Monetary Policy Innovations in Nigeria: A Structural Vector Autoregression (SVAR) Approach”; African Journal of Accounting Economics Finance and Banking Research Vol. 5 No.5.

  • Dineka J. (2015) Money Supply and Inflation: Evidence from Sri Lanka Asian Studies International Journal - Vol. 1 No. 1 January 2015 - ISSN: 2279-1949.

  • Dutton D.S. (1971) A model of Self Generating inflation Journal of money credit and Banking 3(2) 245p

  • Egwaikhide F.O. Chete L.N. and Falokun G.O. (1994); “Exchange Rate Money Supply and Inflation of Nigeria: An Empirical Investigation”; African Journal of Economic Policy; Vol. 1 (1).

  • Fisher I. (1911); “The Purchasing Power of Money” New York: Macmillan.

  • Friedman M. (1968); The Quantity theory of money London: Harvard Publisher limited.

  • Fitsum S.D. Yilkal W.A. and Teshome A. R. (2016). The Relationship between Inflation Money Supply and Economic Growth in Ethiopia: Co integration and Causality Analysis International Journal of Scientific and Research Publications 6(1) 556 – 565.

  • Greenidge K. and Dacosta D. (2009); Determinants of Inflation in Selected Caribbean Countries Business Finance and Economics in Emerging Economies; Vol.4 No.2; Pp 28 – 31.

  • Gujarati D.N. and Porter D. (2009) 3 edn. Basic Econometrics. US: The McGraw-Hill.

  • Itua G. (2000) “Structural Determinants of Inflation in Nigeria (1981-1990)” An Unpublished M.Sc. Thesis Department of Economics Ahmadu Bello University Zaria 2000.

  • Iyabode Masha New Perspectives on Inflation in Nigeria in Central Bank of Nigeria CBN Economic and Financial Review 38(2) (June 2000).

  • Koyuncu F. T. (2014); “Causality Network between Budget Deficit Money Supply and Inflation: An Application to Turkey”; International Journal of Business and Social Science Vol. 5 No. 10(1); Center for Promoting Ideas USA.

  • Lahiri A.K. “Money and Inflation in Yugoslavia” IMF Staff Papers Vol.38. No.4: (1991) pp.751-788.

  • Makinen G. E. and Woodward (1989); The Taiwanese Hyperinflation and Stabilization of 1945 – 1952; Journal of Money Credit and Banking 21(1): Pp 90.

  • Mbongo J. E.; F. Mutasa and R. E. Msigwa (2014); “The Effects of Money Supply on Inflation in Tanzania”; Economics 3(2): Pp 19-26.

  • Musibau and Isa (2011) Money Supply Inflation and Economic Growth in Nigeria. Asian- African Journal of Economics and Econometrics 11(1) 147-163.

  • Odusanya I. A. and A. A. Atanda (2010); Analysis of Inflation and Its Determinants in Nigeria; Pakistan Journal of Social Sciences; Volume 7 No. 2. Pp. 97-100.

  • Ogunmuyiwa M. S. & Francis E. A. (2010). Money supply - economic growth nexus in Nigeria. Journal of Social Sciences 22(3) 199-204

  • Olorunfemi P. & Adeleke P. (2013); Money supply and inflation in Nigeria: Implications for national development; Modern Economy 4 Pp 161-170.

  • Omanukwue P. N. (2010); “The Quantity Theory of Money: Evidence from Nigeria” Central Bank of Nigeria Economic and Financial Review; Volume 48/2.

  • Omotor D G. (2010) “The Nigerian Economy and Monetary Policy: Some Simple Empirics” MPRA Paper No. 22672 pp. 127

  • Onitiri M. A. and K. Awosika “Inflation in Nigeria” Proceedings of a National Conference convened by the Nigerian Institute of Social and Economic Research Ibadan 1982.

  • Orubu C. O. (2009) Inflation in Nigeria: concept measurement and control. Central Bank of Nigeria (CBN) Bullion 33(1) 19-30.

  • Osakwe J.O. (1983); “Government Expenditures Money Supply and Prices 1970-1980”; Journal of CBN Economic and Financial Review; Vol 21 (2).

  • Oyejide T.A. (1972); Deficit Financing Inflation and Capital Formation: An Analysis of the Nigerian Experience 1957-1970”; Nigeria Journal of Economic and Social Studies; Vol. 14 No 1 Pp 27-43

  • Sheffrin S. M. (2003) [January 2002]. Economics: Principles in Action. The Wall Street Journal (Classroom Edition 2nd ed.). Upper Saddle River New Jersey: Pearson Prentice Hall. (Retrieved May 3 2009).

  • Sorensen Eric H. (1982) “Rational Expectations and the Impact of Money upon Stock Prices.” Journal of Financial and Quantitative Analysis 17(5) 649-62.

  • Tang CF (2008); Is Inflation always a Monetary Phenomenon in Malaysia; Online at MPRA Paper No. 19778 posted 11. January 2010 02:17 UTC.

  • Tyrkalo R. and Adamyk B. (1999); Monetary Policy Transmission and Its Meaning to the Effectiveness of NBU activity; Herald of NBU 7611.

  • Uduakobong S.I. (2014) An empirical investigation of the relationship between money supply and inflation in Nigeria: An Econometric Analysis. Journal of Economics and Sustainable Development 5(12) 149 – 155.

  • Uduakobong S.I. (2014) Budget deficit and inflation in Nigeria: An Empirical Analysis Journal of Economics and Sustainable Development 5(4) 26 – 32.

  • Waingade R. A. (2011); Money Supply and Inflation; An Historical Analysis; The IUP Journal of Monetary Economics; Vol. IX No. 1 Pp 22-45.

  • Woodford M. (2002) Interest and Prices: Foundations of a Theory of Monetary Policy Princeton University Press Princeton p.543

  • Yahaya K. (2000); Structural disequilibrium and inflation in Nigeria; A theoretical and empirical analysis; Centre for Economic Research on Africa; School of Business Montclair State University New Jersey.