Investigating the Influence of Past Values of Some Macroeconomic Variables on Money Supply in Nigeria 1990-2011

Abstract

The study investigated the influence of past values of some macroeconomic variables on money in Nigeria 1990-2011. This was done through the use of Vector Auto regression (VAR) technique. The estimation was based on two lags of the endogenous variables. The VAR model assumed that if even X happens before event Y, then X can cause changes in Y but not the other way round. The dependent variable was money supply (MS) while the independent variables were lending rate (LDR), inflation rate (INFR), Real Gross Domestic Product (RGDP) and Exchange Rate (EXCHR). The results indicated that the lags of some variables had positive impacts on money supply while the lags of other variables had negative impact on money supply. In fact second lag of RGDP had the highest positive impact on money supply. The F-Statistics of 51.78954 was high enough and the R² was 0.98 and it indicated that 98 percent of variations in the dependent variable were due to variations in the explanatory variables. The study concluded that the lag values of money supply, lending rate, inflation rate, real Gross Domestic Product and exchange rate influenced money supply in Nigeria. It was recommended that monetary policies with respect to money supply should consider the influence of the lagged values of the variable in question.