The causality relationship between money supply and economic activity indicators in Nigeria
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https://doi.org/10.57054/codesria.pub.674
Mots-clés :
Economic indicators, money supply,, gross national product, inflation, economic activity, NigeriaSynopsis
The focal problem of this study is to investigate the causality direction.of influence.bet~een money supply and GNP, and between money supply and the.price level, both GNP and the price level as .. i~dic~to~s of economic activity ini Nigeri~. Previous empirical studies have made use of correlation analysis. This is questionable because _the finding of_ a higb correlation among variates does not i~ any necessary sense establish that they are causally related. The present study uses
test of causation,9riginally devised by Granger (1969)- and later varied and applied in a,,study by Sims-.C.1972)
to determine the direction of _causation between money supply and these measures of economic activity in
Nigeria. It also tests whether feedback of any kind is occurring between the variables •... :·.':-·- The ·s,t.~dy relies. _o_n time _·series data for the period, 1970-1986. Two measμres of money_supply (M 1 and M 2)~are used, thus making_it possible t6 test theninfluence;of the differènt components of money supply on economic activity. It is found that changes in money supply lead to chang~s in the level of prices. The empirical ~esults also snow tha t f eedback exis.ts from the price level ·to
money supply. This indicates that part of Nigeria's inflation can be traced to çhanges in quantity of money. The study also shows that the different cornponents of ~oney_supply CM 1 and M2 ) affect .. GNP in_diffe~~nt directions. The empirical findings are further applied to a number of empirical and tbeoretical issues: the influence of th~ structure of the econorny, the exogenity of money supply, explaoation for awrongly' signed coefficients in regression modelso The evidence from this.study points to the fact that the conduct of monetary policy aimed at influencing the composition of output or the level·of prices in a developing economy such as Nigeria characterized by structural l;"igidities and some other imperfections may be an ardous task.
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juin 26, 2023
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