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Fiscal Policy Determinants of Money Demand in Nigeria: ARDL Bound Testing Approach

Raymond Osi Alenoghena ()
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Raymond Osi Alenoghena: University of Lagos, Department of Economics, Akoka Lagos, Nigeria

Ovidius University Annals, Economic Sciences Series, 2019, vol. XIX, issue 2, 13-22

Abstract: The study examines the fiscal policy determinants of money demand in Nigeria using annual time series data from 1981 to 2017. The study intends to determine the effects of fiscal policy variables on money demand in Nigeria. A modified Fisher money demand model was estimated using ARDL to capture the long-run equilibrium relationship between the variables. The results showed that the fiscal policy variables had a stable long-run equilibrium relationship with money demand in Nigeria. Among the fiscal policy variables examined, government spending was found to be most impactful on the demand for money in the reverse direction. Furthermore, while government revenue and budget deficit have positive and significant effect on money demand, the effect of income was on significant. Also, government revenue and government expenditure granger caused demand for money. Overall, fiscal policy variables constitute strong influence on variations in money demand in Nigeria. The monetary authority in the country should take into account the influence of fiscal policy variables in planning the target level of money demand and monetary policy in Nigeria.

Keywords: Money Demand; Government Expenditure; Government Revenue; Budget Deficit; Auto-regressive Distributed Lag Model (ARDL) (search for similar items in EconPapers)
JEL-codes: C32 E41 E62 (search for similar items in EconPapers)
Date: 2019
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