Money Supply and Inflation in Nigeria 1986-2009 ODIBA E.O.1, APEH A.S.2, AND DANIEL E.J.3

1Department of Business Administration and management
Nigerian Army Institute of Technology and Environmental Studies
Makurdi, Benue State.
2Department of Economics,
Kwararafa University, Wukari, Taraba State.
3Department of Economics,
Umar Suleiman College of Education, Gashua, Yobe State
E-mail: apehsunday96@gmail.com, odibaonoja26@gmail.com
ABSTRACT
A rapid and persistent increase in the general prices of goods and services
is harmful to the economy in various ways. It is for this reason that price
stability is a prime objective of economic policy all over the world. In
Nigeria, Government has implemented a number of anti-inflation
measures but with limited success. This may be due to an inadequate
understanding of the inflationary process. While there is considerable
disagreement on the causes of inflation, one of the most frequently cited
factor is the money supply. The results of the existing works on the
importance of money supply in the inflationary situation in Nigeria are
mixed. It is against this background that this study investigated the effect
of the money supply on inflation in Nigeria between 1986 and 2009. It
also examined the effect of aggregate demand on inflation. The objective
of this study is to ascertain how far the money supply can explain the
inflationary phenomenon in Nigeria. The study uses secondary data
obtained mainly from the Central Bank of Nigeria’s Statistical Bulletin and
World Bank data base 2011. The data were analyzed principally by
multiple regression method using the ordinary least square method. An
ADF test indicated that some of the variables used were stable at levels
and others at first difference. Other tests are; the GARCH model,
Johansen cointegration. Based on the results of the analysis and test the
study concluded that the money supply and aggregate demand were the
main determinants of inflation in Nigeria during the review period. Given
this conclusion, it was recommended that the Central Bank of Nigeria
should concentrate on controlling the growth of money supply while the
policy of fiscal restraint is used to curb aggregate demand. This would
lead to a moderation of the increases in the price level.