MoneySupplyandInflationinNigeriaImplicationsfor.pdfVIP

Modern Economy, 2013, 4, 161-170 /10.4236/me.2013.43018 Published Online March 2013 (/journal/me) Money Supply and Inflation in Nigeria: Implications for National Development Olorunfemi Sola, Adeleke Peter Department of Economics, Adekunle Ajasin University, Akungba, Nigeria Email: olorunfemi@.ng Received September 6, 2012; revised October 25, 2012; accepted November 28, 2012 ABSTRACT The study examines money supply and inflation rate in Nigeria. Secondary data that ranged between 1970-2008 were sourced from the CBN Statistical Bulletin. The study used Vector Auto Regressive (VAR) model. The stationary prop- erties of the model were also explored. The results revealed that money supply and exchange rate were stationary at the level while oil revenue and interest rate were stationary at the first difference. Results from the causality test indicate that there exists a unidirectional causality between money supply and inflation rate as well as interest rate and inflation rate. The causality test runs from money supply to inflation, from the interest rate to inflation and from interest rate to money supply. The paper concludes that government should use the level of inflation as an operational guide in meas- uring the effectiveness of its monetary policy. Keywords: Money Supply; Inflation; Development and VAR 1. Introduction been affected by the shocks. The signs closely associated with these shocks are huge balance of payment deficits, One of the macroeconomic challenges facing Nigeria high rates of inflation, declining domestic savings, governments in economic history has been the mainte- growing governme