Volume 4, Issue 6, December 2015, Page: 98-105
Transmission Mechanism from Money Supply to Inflation in Nigeria
Mathias A. Chuba, Department of Economics, Faculty of Social Sciences, Kogi State University, Anyigba, Nigeria
Received: Aug. 11, 2015;       Accepted: Sep. 6, 2015;       Published: Sep. 24, 2015
DOI: 10.11648/j.eco.20150406.11      View  3518      Downloads  107
Abstract
This paper seeks to establish the transmission mechanism from money supply to inflation in Nigeria in order to resolve the controversy of whether money supply or interest rate should be a target of monetary policy. In doing this, a recursive vector autoregression (VAR) model is employed using data from first quarter 2000 to fourth quarter 2013. The response of CPI to money supply ranges from zero to 0.014. The response of interest rate to money supply ranges from -0.094 to 0.021. The response of exchange rate to CPI ranges from -0.007 to 0.013. The response of exchange rate to interest rate ranges from -0.004 to 0.003. The response of CPI to exchange rate ranges from -0.002 to 0.010. The positive and significant responses of CPI to money supply and exchange rate to CPI indicate that the impact of the change in money supply is transmitted to inflation in Nigeria through the money-price link. The insignificant response of exchange rate to interest rate shows that the impact of the change in money supply is not transmitted to inflation in Nigeria through the money-interest link. The target of monetary policy should be the money supply and not interest rate.
Keywords
Transmission Mechanism, Money Supply, Inflation, Impulse Response
To cite this article
Mathias A. Chuba, Transmission Mechanism from Money Supply to Inflation in Nigeria, Economics. Vol. 4, No. 6, 2015, pp. 98-105. doi: 10.11648/j.eco.20150406.11
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