EMPIRICAL INVESTIGATION OF MONEY SUPPLY, INFLATION AND ECONOMIC GROWTH NEXUS IN NIGERIA

Abstract

The main goal of monetary policy is to guarantee that the money supply is at a dimension that is steady with the development focus of real income, to such an extent, that non-inflationary development is certain and price stability, guaranteed. Since the discovery of the COVID-19 Pandemic, the money supply has risen consistently, averaging 9.16% between 2020Q1 and 2022Q2. Inflation, on the other hand, has risen by 15.70% while growth averaged a meagre 1.24%. As a result, this study aims to analyse the relationship among select macroeconomic variables. The Toda Yamamoto Vector Autoregressive and Granger Causality approaches are adopted for this study and cover the period 2006Q1 to 2022Q2. There is evidence of joint causality to money supply growth and lending rate. Impulse response functions reveal that increasing growth in money supply causes a marginal rise in inflation while having no contemporaneous effect on real GDP growth. However, over the forecast horizon, increasing levels of money supply growth cause a persistent decline in real GDP growth, insinuating that the levels of growth in the Nigerian economy are motivated by other factors. The Central Bank is encouraged to manage the level of money supply effectively to sustain real GDP growth.