Demand for Money in a Debt-Constrained Nigerian Economy
Demand for Money in a Debt-Constrained Nigerian Economy
ABSTRACT
The study investigates the demand for money in a debt constrained Nigerian economy with the twin objectives of determining the impact of real money balances on economic growth as well as examining the impact of debt repayment ratio on real money balances in Nigeria.
Using annual time series data running from 1981 to 2015, the study estimated two multiple linear regression equations.
The result indicates among other things that real money balances have a significant positive impact on economic growth and the debt repayment ratio is negatively related to real money balance in Nigeria.
The study recommends the effective utilization of monetary policies to check economic growth in Nigeria by pursuing policies that increase the real money balances in domestic economy.
INTRODUCTION
The concept of “money demand” has over the years attracted the interest of great economists. Unlike the demand for goods it is not restricted to one market but also involves other markets
(Money market, capital market commodity market and foreign exchange market), hence it has a direct bearing on monetary policy and so relevant to the study of macro-economics.
The focus on the demand for money is attributed to the fact that monetary policy will only be effective if the demand for money function is stable.
Stability of the demand for money is crucial in understanding the behavior of critical macro-economic variables (Essien, Onwioduokit and Osho, 1996).
The level and stability of the demand for money has received enormous academic attention because an understanding of its causes and consequences can usefully inform the setting of monetary policy.
It is vital to investigate and test the stability of money demand since its instability is a major determinant of liquidity preference.
Monetary policy is a deliberate action of the monetary authorities to influence the quantity, cost and availability of money credit in order to achieve desired macroeconomic objectives of internal and external balances.
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