STABILITY OF THE NIGERIAN MONEY DEMAND FUNCTION 1970-2010

This study examines the stability of the Nigeria money demand function from 1970- 2010. Emphasis is on whether the broad money M₂ as an intermediate target, is the appropriate one for Nigeria. Based on application of advanced econometric techniques (chow, stability granger causality & co-integration test) conducted, it was observed that there existed long-run relationship between real money demand function and the independent variables. Our results indicated the presence of structural break effect during the period of the study. Furthermore only the CUSUM test confirms the stability of short-run parameters of real money demand function, while CUSUMSQ was found to be unstable. These empirical results do not support the CBN in its choice of M₂ as an intermediate target for monetary policy in Nigeria during SAP and after it. Based on these findings, the researcher hereby recommends that, The CBN should deviate from M₂ as an intermediate target for monetary policy.