AN ASSESSMENT OF THE RELATIONSHIP BETWEEN MONEY SUPPLY, INFLATION AND OUTPUT IN NIGERIA (1970-2016)

AN ASSESSMENT OF THE RELATIONSHIP BETWEEN MONEY SUPPLY, INFLATION AND OUTPUT IN NIGERIA (1970-2016)

Abstract:

This study examined the relationship between Money Supply, Inflation andOutput level in Nigeria with view to ascertaining the existence or otherwise of the Tobin effect. To achieve this, the study employed the ARDL bound testing approach to cointegration on annual series of Money supply, CPI and real GDP growth rate from 1970-2016.After controlling for the observed structural breaks in the series using the dummy variable approach, the short run model shows that Money supplyexerts a positive impact on the output level by of 0.21% while inflation retards output by 0.11%. However, in the long run, both money supply and Inflation were found to have no significant impacton output level. This findings suggest the absence of Tobin effect in Nigeria. The study therefore recommends that:the monetary authority must fasten its braces against inflation as well as its money supply generating mechanisms. Also, in order to consolidate the short run gains in output achieved by the money supply through the long run, effort should be geared towards boosting the productive base in order to meet up with the increase in demand which will consequently tame inflation.

AN ASSESSMENT OF THE RELATIONSHIP BETWEEN MONEY SUPPLY, INFLATION AND OUTPUT IN NIGERIA (1970-2016)