Impact of Injection and Withdrawal of Money Stock on Economic Growth in Nigeria

Abstract

Economists believe that money supply or money stock relates to the total amount of money available in an economy at a particular point in time either exogenously determined by the Central bank or endogenously determined by changes in the economic activities, which affects people’s desire to hold currency relative to deposits or rate of interest. Therefore, what role or impact does the injection and withdrawal of money stock into the economy has on the economic growth performance in Nigeria and what are the trends of such contribution to the Nigerian economy. This paper in providing solution to the above question therefore uses the ordinary least square method of simple regression models to analyze the effect of the injection and withdrawal of money stock on real Gross Domestic Product (GDP) as well as examining the transmission channel of the relationship between growth and money stock index covering the period of 1970 to 2008. In conclusion, observation of the theoretical and empirical analysis indicates that, injection of money stock into the economy tends to reduce interest rate thereby increasing investment. The study therefore recommends that the Central Bank of Nigeria needs to develop a strategic plan to deal with failing banks as well as deals with monetary policy in a more transparent manner so as to address the issues of expectations as inflation exhibits a high degree of inertia.

Keywords: Injection, withdrawal, money stock, economic growth.