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


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


Ahmed, S. (2012). An Empirical Study on Inflation and Economic Growth in Bangladesh OIDA. International Journal of Sustainable Development. 2 (3), pp. 41-48.
Babatunde M.A. and Shuaibu M.I. (2011). Money Supply, Inflation and Economic Growth in Nigeria, Asian-African Journal of Economics and Econometrics, 11, (1), 2011: 147-163
Bakare A.S. (2011). A Theoretical Analysis of Capital Formation and Growth in Nigeria, Far East Journal of Psychology and Business. 3 (1), April 2011.
Balakrishnan, P. (2011). Money, Output and Price Level. Economic and Political Weekly,26 (24), pp. 1472-1474.
Barro, R. (2012). Inflation and Economic Growth: NBER Working Paper53(26) 166- 176.
Barro, R. (2011). Determinants of Economic Growth: A Cross-Country Empirical Study. NBER Working Paper. 56(98), pp. 22-29.
Bick, A., Kremer, S, & Nautz, D. (2012). Inflation and Growth: New Evidence from a Dynamic Panel Threshold Analysis'. SFB 649 Discussion Paper036. pp. 33- 47.
CBN (1990), Financial and Economic Review: Publication of Central Bank of Nigeria (CBN).
CBN (2016), CBN Annual Statistical Bulletin: Publication of Central Bank of Nigeria.
Datta, K, & Kumar, C. (2014). Relationship between Inflation and Economic Growth in Malaysia. International Conference on Economics and Finance ResearchIPEDR 4 (2), pp. 415-16.
Egwaikhide, F. O., Chete, L. N, & Falokun, G. O. (2013). Exchange Rate, Money Supply and Inflation in Nigeria: An Empirical Investigation, African Journal of Economic Policy1(1)
Fischer, S. (1979). The Role of Macroeconomic Factors in Growth. Journal of Monetary Economics, 47(5), pp. 485-512.
Frimpong, M, & Oteng-Abayie, F. (2010). When is Inflation harmful?: Estimating the Threshold Effect for Ghana, American Journal of Economics and Business Administration, 2(3), pp. 232-239.
Fekadu, (2012). Effect of inflation, Money Supply on Economic Growth in Ethiopia.
African Economic Research Consortium, 65(3), pp. 1-7.
Ghosh, A. & Philips, S. (2013). Warning: Inflation May Be Harmful to Your Growth.
International Monetary Fund Staff Papers, 45(4), pp. 672- 710.

Grauwe, P, & Pollan, M. (2015). Is Inflation Always and Everywhere a Monetary Phenomenon? The ScandinavianJournal of Economics, 45(4), pp 672-710
Hasanov, F. (2010). Relationship between Inflation and Economic Growth in Azerbaijani Economy: Is there any Threshold Effect? Asian Journal of Business and Management Sciences,1 (1), pp. 6-7.
Kilindo, A. (2014). Fiscal Operations, Money Supply and Inflation in Tanzania.
African Economic Research Consortium,65(3), pp. 1-7.
Ikechukwu, N. (2016). The impact of Money Supply on Economic Growth in Nigeria (1981- 2010), International Journal on Economics and Finance. ISBN 223-332.
Lashkary, M, & Kashani, B.H. (2016). The Impact of Monetary Variable on Economic Growth in Iran: A Monetarists' Approach, World Applied Science Journal, 15(3) (2016) 449 – 456.
Levine, R. (2013). Financial Development and Growth: Views and Agenda. Journal of Economic Literature, 35: 688-726.
Lucas, R. E. (2000). “Inflation and Welfare” Econometrica,68(2), pp. 247-274.
Moosa, S. (2011). “Money, Inflation, and the Monetarist Explanation: Evidence from the Post- War U.S. Experience” Eastern Economic Journal, 8(2), pp. 101-119.
Mallik, G, & Chowdhury, A. (2013). Inflation and Economic Growth: Evidence from Four South Asian Countries, Asian Pacific Development Journal, 8(1), pp. 123-135.
Marbuah, G. (2010). The Inflation-Growth Nexus: Testing for Optimal Inflation for Ghana, Journal of Monetary and Economic Integration, 11(2), pp. 71-72.
Mohamed, A. A. L. (2016). Impact of Money Supply on Sri-Lankan Economy: An Econometric Analysis. International Letters of Social and Humanistic Sciences Submitted: 2016- 2-08 ISSN: 2300-2697, 67, pp 11-17.
Moroney, J. R. (2013). Money Growth, Output Growth, and Inflation: Estimation of a Modern Quantity Theory, Southern Economic Journal, 69(2) pp. 398-413.
Mwase, N. (2016). An Empirical Investigation of the Exchange Rate Pass-Through to Inflation in Tanzania, IMF Working Paper, 06(150), 4-7.
Nouri, M, & Samimi, A. J. (2016). The Impact of Monetary Policy on Economic Growth in Iran, Middle –East Journal of Scientific Research,9(6) pp. 740 – 743.
Odunsaya, I. A, & Atanda, A. A. (2012). Analysis of Inflation and Its Determinants in Nigeria, Pakistan Journal of Social Science,7 (2) pp 97-100.
Ogunmuyiwa, M. S, & Francis, E. (2015). Money Supply – Economic Growth Nexus in Nigeria, Journal of Social Sciences,22(3) (2015) 199 – 204.

Omoke P.C, & Ugwuanyi, C.U. (2010). Money, Price and Output: A Causality Test for Nigerian, American Journal of Scientific Research, Issue (8), pp 78-87.
Owoje, O, & Onofowora, A.O. (2015). M2 Targeting, Money Demand and Real GDP Growth in Nigeria. Journal of Business and public Affair, (12): 25-34.
Prasanna, S, & Gopakumar, K. (2010). An Empirical Analysis of Inflation and Economic Growth in India, International Journal of Sustainable Development,15(2) pp. 4-5.
Quartey, P. (2013). Price Stability and the Growth Maximizing rate of inflation for Ghana, Business and Economic Journal,1(1), pp. 180-194.
Sergii, P. (2014). Inflation and Economic Growth: The Non-Linear Relationship.
Evidence from CIS Countries. Kyiv School of Economics, Ukraine.
Seoud, E.I, & Abou, M.S. (2015). Testing the Relationship between Money Supply and GDP in Bahrain, International Journal of Economics, Commerce and Management, United Kingdom, II(5), pp. 1 – 16.
Sims, C. (2016). Money, Income and Causality, Journal of American Economic Review, America, 63(4) 540-552.
Sidranski, M. (1967). Inflation and Economic Growth, Journal of Political Economy,75(6), pp 796-810.
Teriba, A. O. (2006). Stylized Facts on Demand for Money in Nigeria. Publication of Economic Associates in Social Science Research Network (SSRN), Culled from the internet.
Tobin, J. (1967). Money and Economic Growth, Econometrica XXXIII No. 4 pp 671-84
Udah, E. B. (2009). Monetary Policy and Macroeconomic Management: A Simulation Experiment, Global Journal of Social Sciences, 8(1)
Umaru, A, & Zubairu, J. (2012).The Effect of Inflation on the Growth and Development of the Nigerian Economy: An Empirical Analysis, International Journal of Business and Social Science,3(10), pp. 187-188.