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The Structure of Monetary Equilibrium Models: Theory and Application to Nigeria
Abstract
The study compared the theories of the monetarist and keynesian school of thought with the
Nigerian economic policies regarding money supply and inflation over a period of thirty five
years (1981-2015). The motivation for this study was borne out of a contentious dispute that
there seem not to be any consensus as to which economic theory has been dominant in the
Nigerian economic landscape superintended by various governments over time. The hypotheses
were premised on the opposing beliefs of these schools of thought as to the effect of money
supply on prices. The methodology embarked on was regression analysis. The model of the study
was well fitted as the AIC, or Schwarz criterion, shows that the difference between the two is
very negligible, an indicator of a near perfect model convergence near zero. The smaller they
are the better the fit of your model is (from a statistical perspective) as they reflect a trade-off
between the lack of fit and the number of parameters in the model. The goodness of fit of the
model testing the effect of money supply on inflation indicates a significantly high variation of
99.3% and 99.2% of inflation by money supply by the R2 and adjusted R2. The ADF seen on
table 4.2.2 shows that at 1%, 5% and 10% critical values the values are more negative than ADF
test static. The conclusion of this study is to accept the alternate hypothesis which suggests that
money supply has a significant effect on inflation and to reject the conjecture in the null
hypothesis which said that money supply has no significant effect on inflation. It is the
recommendation of this study that monetary policy is better suited to stabilize the economy if it is
used to target inflation directly rather than used directly to stimulate the economy. Further
recommendations of study include that interest rate regime should be flexible enough to adapt to
market based realities. There should be a narrowing of the gap between the interbank rate and
the parallel market to avoid the attendant distortions in the foreign exchange market or in the
market’s ability to provide enabling environment for trading in foreign currency. The
government should find practical ways to increase money supply as a means of targeting
inflation given the recession in the last two quarters of 2016.
TABLE OF CONTENT
Title page- – – – – – – – – i
Approval page – – – – – – – -ii
Dedication – – – – – – – – -iii
Acknowledgement – – – – – – – -iv
Abstract – – – – – – – – – -v
Table of content – – – – – – – -vi
CHAPTER ONE
INTRODUCTION – – – – – – – -1
1.0 Background of the study – – – – -1
1.1 Statement of the problem – – – – -5
1.2 Purpose of the study – – – – – -6
1.3 Significance of the study – – – – -8
1.4 Research questions – – – – – -9
1.5 Scope of the study – – – – – – -10
CHAPTER TWO
LITERATURE REVIEW – – – – – – -11
CHAPTER THREE
Research methodology – – – – – – -39
Design of study – – – – – – – -40
CHAPTER FOUR
Presentation, analysis and interpretation of data – -48
CHAPTER FIVE
Summary of findings – – – – – – -60
Conclusion – – – – – – – – -61
Recommendations – – – – – – – -62
Suggestions for further research – – – – -64
References – – – – – – – – -65
Appendix I – – – – — – – – -68
Questionnaire. – – – – – – – -69
