DETERMINANTS AND STABILITY OF DEMAND FOR MONEY FUNCTION IN NIGERIA: EVIDENCE FROM AUTOREGRESSIVE DISTRIBUTED LAG (ARDL) MODEL
Gwom, Ayuba Usman, Steve Azi Dabo, PhD and Nyamdu, Stephen. Chiya
Volume 9 Issue 2
Abstract
The study examined the determinants and stability of money demand function in Nigeria using the Autoregressive Distributed Lag (ARDL) modeling. The study was guided by the Expost-facto design. The study used time series data spanning 1986 to 2020 sourced from the Central Bank of Nigeria Bulletins and World Development Indicators (WDI). The ARDL Estimation technique was employed since the ADF unit root test yielded 1(0) and 1(1) orders of integration. The findings revealed that CPI had a significant positive effect on money demand function, while Nominal Interest Rate (NIR) had an insignificant positive effect on stability of money demand in the current period. Real Gross Domestic Product (RGDP) had a significant negative effect on money demand function, while Total Public Debt (TPD) had significant positive effect on stability of money demand function. The study concluded that consumer price index, nominal interest rate, real effective exchange rate, real GDP and public debt are significant determinants of money demand function, and the CUSUM Test indicated that function was stable in Nigeria. The study recommends that monetary authority should lower the nominal interest rates to raise money demand and the economy should be diversifying so as to raise real GDP and reduce public debt in order to ensure stability in the demand for money function in Nigeria. Keywords: Money Demand Function, Consumer Price Index, Nominal Interest Rate, Exchange Rate, Public Debt
Download Paper