Macroeconomic Variables and Money Supply: Evidence from Nigeria

Abstract

This paper reviews the effect and implication of selected Macroeconomic variables on Money supply (M2), using derived secondary data gotten from the Central Bank statistical Bulleting (2013). Coupled with the application of econometric technique such as; O.L.S., causality test and Co-integration of time series data to estimate the long and short run relationship and causality of employed variables. The results revealed that all variables were stationary at various lags and there exists a long run relationships between variables employed and it was discovered that apart from inflation having an inverse significance with Money supply (M2) and Exchange Rate (EXR), all other variables such as Gross Domestic Product (GDP) were found to have a positive impact on Money Supply. It was therefore recommended that Nigeria Banks should be committed to the mission of price stability as well as improving the regulatory and supervisory frameworks to secure a strong financial sector for efficient intermediation in other to avoid the inflationary impacts government should control the excessive expansion in broad money supply in Nigeria.

Keywords: money supply, inflation, GDP, Exchange Rate