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Asymmetric effects of exchange rate on money demand in Nigeria: evidence from the new broad money aggregate (M3)

Author

Listed:
  • Udoma Johnson Afangideh
  • Tuwe Soro Garbobiya
  • Farida Bello Umar
  • Nuruddeen Usman
  • Victor Unekwu Ocheni
  • Sanusi Muhammad Yakubu

Abstract

Purpose - This paper is focused on determining the asymmetric effects of exchange rate on money demand function in Nigeria. Design/methodology/approach - It employs the empirical model of Baumol–Tobin. Baumol (1952), which was founded on the opportunity and transaction cost of holding money. Monetary aggregates, M1, M2 and M3, are used for the real money balances based on the nonlinear Autoregressive Distributed Lag bound testing procedure. Findings - The results indicate that the positive and negative partial sum of exchange rate changes differ in magnitude and size, supporting the hypothesis of asymmetric effects of exchange rate changes on the demand for money in Nigeria. Originality/value - This is the first paper to consider the new broad money aggregate (M3).

Suggested Citation

  • Udoma Johnson Afangideh & Tuwe Soro Garbobiya & Farida Bello Umar & Nuruddeen Usman & Victor Unekwu Ocheni & Sanusi Muhammad Yakubu, 2021. "Asymmetric effects of exchange rate on money demand in Nigeria: evidence from the new broad money aggregate (M3)," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 12(3), pages 470-485, July.
    • Handle: RePEc:eme:ajemsp:ajems-02-2021-0080
    DOI: 10.1108/AJEMS-02-2021-0080
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    More about this item

    Keywords

    Money demand; Asymmetries; Exchange rate; NARDL model; C22; E40; F31;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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