EFFECTS OF MONEY SUPPLY AND EXCHANGE RATES ON INFLATION IN NIGERIA

Umeora, Chinweobo Emmanuel

Department of Banking and Finance

Anambra State University, Igbariam Campus

ABSTRACT

This study examines the effects of money supply (M₂) and Exchange Rates on Inflation in Nigeria for the period of 28 years ranging from 1982 to 2009. Annual figures were collated for Inflation Rates: money supply and Exchanges rates for the years under study. The figures were analyzed using Multiple Regression Analysis (with SPSS). A model was built with Inflation as dependent variable while money supply and exchange rate were the independent variables. Our results show that while Money Supply and Exchange rate were the dependent variables. Our results show that while Money Supply and Exchange Rate are correlated, each affects inflation in varying degrees. Money Supply and Exchange Rate are correlated; each affects inflation in varying degrees. Money supply has positive effect while exchange rate has negative effect. However the two account for only about 12% of the causes. That means that there are some other more important factors that need to be investigated. Such other factors may relate to government growing annual deficit budgets, increasing lending rates of commercial banks.

Keywords: Inflation, Exchange Rate, Money Supply, Monetary Aggregates, Cost-of-Living Index (COLI)