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Money demand stability: A case study of Nigeria

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  • Kumar, Saten
  • Webber, Don J.
  • Fargher, Scott

Abstract

Monetary policy in Nigeria aims is to achieve price and monetary stability. During the 1980s and 1990s, monetary targeting was the dominant monetary policy framework in Nigeria. However, in 2006 the Central Bank of Nigeria (CBN) adopted the new monetary policy framework through which short-term interest rates are adjusted to achieve stability in the value of the domestic currency. This paper has presented an empirical investigation into the demand for Nigerian real narrow money (M1) over the period 1960–2008 in an attempt to identify whether the CBN were right to adopt the new monetary policy framework. In doing so, we estimate alternative (canonical and extended) specifications of M1 demand using structural change methods. Our results suggest that the canonical specification is well-determined. Although the money demand relationship went through a regime shift in 1986, it is largely stable. These findings favour the use of supply of money as an instrument of monetary policy, thus lending limited support for the new monetary policy framework.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 35 (2013)
Issue (Month): 6 ()
Pages: 978-991

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Handle: RePEc:eee:jpolmo:v:35:y:2013:i:6:p:978-991

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Web page: http://www.elsevier.com/locate/inca/505735

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Keywords: Money demand; Structural breaks; Cointegration; Monetary policy;

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Cited by:
  1. Kumar, Saten & Sen, Rahul & Srivastava, Sadhana, 2014. "Does economic integration stimulate capital mobility? An analysis of four regional economic communities in Africa," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 29(C), pages 33-50.

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