Financial Liberalization and Long-Run Stability of Money Demand in Nigeria

Forthcoming: Journal of Policy Modeling, 41(5), pp. 963-980. (September, 2019)

25 Pages Posted: 5 Jun 2017 Last revised: 18 Sep 2019

See all articles by Oludele Folarin

Oludele Folarin

University of Ibadan - Department of Economics

Simplice Asongu

African Governance and Development Institute

Date Written: June 2, 2017

Abstract

A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregate and its determinant. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.

Keywords: Stable; Demand for Money; Bounds Test

JEL Classification: E41; C22

Suggested Citation

Folarin, Oludele and Asongu, Simplice, Financial Liberalization and Long-Run Stability of Money Demand in Nigeria (June 2, 2017). Forthcoming: Journal of Policy Modeling, 41(5), pp. 963-980. (September, 2019). Available at SSRN: https://ssrn.com/abstract=2979277 or http://dx.doi.org/10.2139/ssrn.2979277

Oludele Folarin

University of Ibadan - Department of Economics ( email )

Department of Economics
Ibadan, OK Oyo State 900001
Nigeria

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

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