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AN ASSESSMENT OF THE EFFECT OF MONEY SUPPLY IN NIGERIAN INFLATIONARY TRENDS, 1970-1993
Abstract:
A lot of contentions and debate have been generated in Economics as regards the relative importance of the monetary Policy vis-a-vis the fiscal policy in controlling the economic variables of a nation. Of recent again, is the debate between the monetarists and structuralists about the best way to tame price level movements in an economy. The monetarist have declared that the best way to control price level is to manipulate the monetary variables and inflation will cease or at worse reduce. On the other hand, the structuralists hold the opinion that inflation is mainly caused by structural bottlenecks, which even go a step further in hampering the effectiveness and efficiency of the monetary variables manipulation. A number of works on the monetrist approach to inflation, have been carried out with emphasis on the money supply as it affects inflation, and it has been found out that controlling the money supply will to a large extent dampen the rate of inflation in Nigeria. This thesis employed a reduced form of a model to provide an empirical insight into the relationship between money supply, gross domestic product, budget deficit, exchange rate, foreign prices and inflation using Nigerian data for the period 1970-1993. The thesis has shown that although money supply, budget deficit, output level and exchange rate affect the movements of the price level, of significance among them is the impact of exchange rate on inflation in Nigeria for the period under study. When the impact of all the variables on the price level where tested, their impact seemed to be swallowed up by exchange rate alone indicating that the impact of exchange rate on the inflationary process is very significant when combinis because the exchange rate played prominent role in pushing up the inflation rate in Nigeria from the last half of the 1980s. However, also of significance is the price level lagged suggesting that price mark-up is a very important factor in price determination in Nigeria. Hence the thesis is concluded on the note that although money supply and price level are positively related, the relationship is not very strong and it could therefore not best explain the rising prices in the face of the stringest economic and monetary measures of today. Government efforts should be geared towards determining the main causal factors for correct policy formulation.ed with all the variables and under the period in view. This
AN ASSESSMENT OF THE EFFECT OF MONEY SUPPLY IN NIGERIAN INFLATIONARY TRENDS, 1970-1993
