Money Supply and Inflation: Disaggregated Time Series Evidence from Nigeria

  • Nwonodi Daniel Ikezam Department of Banking and Finance, Rivers State University, Port Harcourt, Nigeria, Nigeria
Keywords: Money Supply, Inflation, Currency in Circulation, Demand Deposit, Saving Deposit.


This paper examined money supply and inflation in Nigeria. The objective was to examine the extent to which components of money supply affect Nigerian inflation rate. Time series data was sourced from Central Bank of Nigeria (CBN) statistical bulletin and Stock Exchange Factbook. Nigerian Real Inflation Rate was proxy for dependent (INFR) variables while Currency in Circulation (CR), Demand Deposit (DD), Time Deposit (TD), Savings Deposit (SD) and Net Foreign Asset (NFA) were used as independent variables. The Ordinary Least Square (OLS) method of cointegration, Augmented Dickey Fuller Unit Root, Granger Causality was used as data analysis techniques. Regression result in the study shows that Currency in Circulation, Demand Deposit and Savings Deposit has negative relationship while Net Foreign Asset and Time Deposit have positive relationship with inflation. The Augmented Dickey Fuller Test proved non stationarity of the variables at level except Net Foreign Asset but stationary at first difference. The Granger Causality Test reveals no casual relationship running through the variables. The cointegration proved no long run relationship between the dependent and independent variables. The study conclude that Money Supply have significant relationship with Nigerian Inflation Rate. It therefore recommends effective management of money supply by the monetary authorities to achieve the monetary policy objectives of price stability.


Ajisafe, R. A., and Folorunso, B. A., (2002). The relative Effectiveness of Fiscal and Monetary Policy in Macroeconomic Management in Nigeria, African Economic and Business Review, 3 (1), 15 – 70.
Akinlo, A. E., (2003).The Determinants of Inflation in Nigeria, Indian Journal of Economics, LXXXVI (341).
Andrew, A., and Patrick, K., (2001). The Advantage of Transparent Instruments of Monetary Policy, Federal Reserve Bank of Minneapolis, Research Department Staff Report, 297,
Bernhardsen, T., and Holmsen, A., (2005). The choice of exchange rate assumption in the process of forecasting inflation, Staff Memo, 3, Central Bank of Norway.
Bleaney, M., (2000). Exchange Rate Regimes and Inflation Persistence, IMF Staff Papers, 247, 387-402.
Bleaney, M., (2001). Exchange Rate Regimes and Inflation Persistence, IMF Staff Papers, 47 (3), 17 – 87.
Brouwer, G., and N. R., (1998). Modelling Inflation in Australia, Forthcoming, Journal of Business and Economic Statistics.
Clemens, J. M. K., and Alex, L., (2002). Inflation Persistence under Semi-Fixed Exchange Rate Regimes: The European Evidence, 1974-1998
Debelle, G., and Galati, G., (2005). Current account adjustment and capital flows, BIS Working Papers, 169.
Elias C., and Joshua G., (2000). Monetary Growth and Exchange Rate Depreciation as Causes of Inflation in African Countries, International Monetary Fund, Washington, D.C., World Bank Working Paper.
Engle, R. F., and Granger, C. W. J., (1987). Co-Integration and Error-Correction: Representation, Estimation and Testing, Econometrica, 55 (6), 251-276. The dynamics of money supply, exchange rate and inflation in Nigeria Ed.
Ihor, D., (2001). Monetary Policy of Economic Growth in the Transitional Economy, Shevchenko National University, Kyiv, Ph.D Dissertation.
Iyabode M., (2000). New Perspectives on Inflation in Nigeria in Central Bank of Nigeria, CBN Economic and Financial Review, 38(2).
Johansen, S., (1988). Statistical Analysis of Cointegration Vectors, Journal of Economic Dynamics and Control, 7 (12), 231-254.
Mahamadu, B., and Phillip, A., (2003). Monetary Growth, Exchange Rates and Inflation in Ghana: An Error Correction Analysis, Working Paper, WP/BOG-2003/05,
Marta, M., Peter, S., and Anita, T., (2004). Inflation, Exchange Rates and the Role of Monetary policy in Albania, Working Paper, 6 (88), 89 – 97.
Steven, B., Kamin, A., (1997). Multi-Country Comparison of the Linkages between Inflation and Exchange Rate Competitiveness, BIS Working Papers, 45, (9), 23 – 69.
How to Cite
Ikezam, N. D. (2018). Money Supply and Inflation: Disaggregated Time Series Evidence from Nigeria. American Finance & Banking Review, 2(1), 54-63.
Original Articles/Short Communications