EFFECTS OF MONEY SUPPLY ON SELECTED MONETARY VARIABLES IN NIGERIA (1986 – 2016)

There exists divergence of opinions in the literature on the relationship between money supply and monetary variables. The mix of opinions makes the direction of their relationship ambiguous. This study investigated the effects of money supply on inflation rate, interest rate and exchange rate in Nigeria. Money supply (MS) is the independent variable while monetary variables are the dependent variables. The study covered the period of thirty-one years from 1986 to 2016. The study adopted ex-post facto research design. Secondary data were sourced from the CBN Statistical Bulletin. Analyses were carried out using Ordinary Least Squares, Simple Linear Regression Model, Augmented Dickey-Fuller unit root test, Johansen co-integration test and Error Correction Mechanism (ECM). The results from the analysis revealed insignificant effect between money supply and inflation rate as well as insignificant effect between money supply and interest rate, while money supply is significantly related to exchange rate in Nigeria. In line with the findings, the study recommended among others that monetary authorities should continue to pursue stable and predictable monetary and fiscal policies, since money had played greater role in exchange rate variations. It is imperative to state that, achieving this would go a long way in ensuring that the CBN achieves its mandate of maintaining price and monetary stability, as well as sustained economic growth.