MONEY SUPPLY, INFLATION, AND ECONOMIC GROWTH IN NIGERIA: ERROR CORRECTION MODEL (ECM) APPROACH

  • Ugwuanyi, Charles Uche (Ph.D) Michael Okpara University of Agriculture, Umudike, Abia State, Nigeria.
Keywords: Inflation, Economic growth, Long-run equilibrium, ECM

Abstract

The study examined the long-run equilibrium relationship between inflation, money supply on economic growth in Nigeria. The ECM model and Co- integration test were used and five variables such as of economic growth, broad money supply, inflation, real exchange rate and real interest rate were used for the study. The variables were tested for unit root using the Augmented Dickey-Fuller approach and were found to be stationary at levels and first difference. The co-integration and error correction mechanism were carried and the findings were: Broad money supply has positive and significant impact on economic growth. This implies that when central bank increases money supply with inflation checking, it will in turn lead to increase in economic growth in Nigeria. Inflation has a negative impact on economic growth in Nigeria. This implies that an increase in inflation will lead to a decrease in economic growth and also the result shows that it is statistically significant. Real exchange rate has a positive and significant impact on economic growth in Nigeria. The co-integration test reveals the existence of co-integration among variables; this implies that there is a long-run relationship between the variables in the model. The coefficient of ECM indicates that about 22.6% of disequilibrium in the short-run will be corrected in the long-run. The speed of adjustment indicates that the model will converge completely to its equilibrium system in 4.2years.The study recommends that Government through its monetary policy should maintain the price stability by controlling the growth of money supply in the economy. Effort should be made to enhance a policy that will encourage money supply in order to boost the economic growth of Nigerian; this is a result of its positive and significant impact in economic growth.

Author Biography

Ugwuanyi, Charles Uche (Ph.D), Michael Okpara University of Agriculture, Umudike, Abia State, Nigeria.

Department of Economics

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Published
2019-05-23