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Financial liberalization and long-run stability of money demand in Nigeria

Oludele Folarin () and Simplice Asongu ()

Journal of Policy Modeling, 2019, vol. 41, issue 5, 963-980

Abstract: A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM of square) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregates and their determinants. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.

Keywords: Stable; Demand for money; Bounds test (search for similar items in EconPapers)
JEL-codes: E41 C22 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Financial liberalization and long-run stability of money demand in Nigeria (2017) Downloads
Working Paper: Financial liberalization and long-run stability of money demand in Nigeria (2017) Downloads
Working Paper: Financial liberalization and long-run stability of money demand in Nigeria (2017) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:41:y:2019:i:5:p:963-980

DOI: 10.1016/j.jpolmod.2019.04.005

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