Financial liberalization and long-run stability of money demand in Nigeria

Abstract

A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM of square) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregates and their determinants. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.

Inflation, Oil Revenue, and Monetary Policy Mix in an Oil-Dependent Economy: Empirical Insights from the Case of Nigeria

“…Applying the ARDL technique in the case of this study is therefore justifiable. In addition to the properties of the dataset which are compatible with the application of the ARDL technique, there are other important beneficial aspects of applying this technique in our study such as the benefit of obtaining both the long-run and short-run dynamics of the system as identified in various empirical studies (Folarin & Asongu, 2019;Li & Lin, 2016;Nwaka & Onifade, 2015).…”

The stability of demand for money in the proposed Southern African Monetary Union

“…Third, in accordance with Folarin and Asongu (2019), contemporary studies related to the stability of the demand for money in developing countries have for the most part, been motivated by the importance of financial innovation in the instability of demand for money function. The extant studies that are supportive of this position include: Nachega (2001) for Kenya, Kumar (2011) for 20 developing nations and Ndirangu and Nyamongo for Uganda.…”

“…The adopted variables include: real broad money, real gross domestic product (GDP), exchange rate, inflation and foreign interest rate. The adopted variables are in line with Folarin and Asongu (2019) and the literature on the stability of the demand for money discussed in the introduction. The definitions and sources of the variables are clarified in Table II.…”

Revisiting the trade and unemployment nexus: Empirical evidence from the Nigerian economy

“…Given adequate considerations to the available data and their properties, the bound test approach to co-integration was applied to test the existence of long-run relationships among our variables in this study. Thao and Hua (2016) and Folarin and Asongu (2019) have highlighted some inherent benefits in the ARDL approach to include; its applicability in co-integration test given a relatively small sample size, possibilities of accommodating variables at different lags and the benefit of being able to obtain both short-run and long-run coefficients. In addition, Nwaka and Onifade (2015) and Ghouse et al (2018) have also noted that the ARDL model has other desirable properties as it can be a useful approach in dealing with issues of spurious regression.…”