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Money Supply and Inflation in Nigeria: Implications for National Development

DOI: 10.4236/me.2013.43018, PP. 161-170

Keywords: Money Supply, Inflation, Development and VAR

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Abstract:

The study examines money supply and inflation rate in Nigeria. Secondary data that ranged between 1970-2008 were sourced from the CBN Statistical Bulletin. The study used Vector Auto Regressive (VAR) model. The stationary properties of the model were also explored. The results revealed that money supply and exchange rate were stationary at the level while oil revenue and interest rate were stationary at the first difference. Results from the causality test indicate that there exists a unidirectional causality between money supply and inflation rate as well as interest rate and inflation rate. The causality test runs from money supply to inflation, from the interest rate to inflation and from interest rate to money supply. The paper concludes that government should use the level of inflation as an operational guide in measuring the effectiveness of its monetary policy.

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