Demand for Real Cash Balance in Nigeria: Stock Adjustment Model (SAM) Technique
This study investigated the impact of income and interest rates on future demand for real cash balance in the Nigerian economy. Narrow money represented demand for money as dependent variable and national income (real GDP) and interest rate (proxy of lending rate and deposit rate) stood as independent variables. Quarterly time series data were sourced from the Central Bank of Nigeria between 1986q1 and 2019q4. Stock Adjustment Model (SAM) technique was employed for analysis. Findings from the analysis revealed that real GDP and lending interest rate had positive significant impact on future demand for real cash balance, while deposit interest rate had negative and insignificant effect on demand for real cash balance. It is therefore suggested that monetary authority still has a lot of work to do by stimulating the economy through prioritising both short run and long run monetary policies that will guarantee cash balance for economic use for all economic agents.
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