Inflation and Demand for Money in Emerging Economies: Evidences From Nigeria

Abstract

The economic performance of the Nigerian economy revealed that for quite some time now, the GDP of the country has been declining and fluctuating over time as compared with the U.S economy that was growing even in the face of inflation. The focus of the research was therefore a critical evaluation of factors that can encourage increasing and stable growth even in the face of inflation backed with high rate of money demand. The study examined the effect different economic variables such as inflation, income; interest rates, price level and exchange rate have on demand for money, by applying regression analysis with an Error Correction Model (ECM) on various economic variables, covering a period of thirty-three years (1970-2003).  The study revealed on one hand that inflation was not affected by trend but by Nigerian government policies and that inflation does not exert any significant influence on demand for money. It is therefore recommended that the authorities of should implement policies that will ensure minimal inflation rate. Also, attempt to control the amount of money people hold should not be done through inflation since it would not be effective but should be controlled by the adoption of an appropriate income policy

Keywords: Emerging economies, Inflation, Money, Nigerian economy, Structural Adjustment Programme