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Causality Dynamics between Money Supply and Inflation in Nigeria: A Toda-Yamamoto Test and Error Correction Analysis

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  • Umoru David
  • Tizhe N. Ann

Abstract

This paper examines the dynamics between money supply and inflation in Nigeria using the Toda-Yamamoto causality test and the error correction methodology from the period of 1980-2012. Causality is found to run from money stock to output and inflation within the confines of the Nigerian economy. The estimated inflation elasticity of money stock is 1.002. Accordingly, increase in money supply is proportionately matched by the increase in inflation rate in Nigeria. Therefore, the study concludes that inflation is a purely monetary phenomenon in Nigeria as the coefficient of broad money supply is equals unity.

Suggested Citation

  • Umoru David & Tizhe N. Ann, 2014. "Causality Dynamics between Money Supply and Inflation in Nigeria: A Toda-Yamamoto Test and Error Correction Analysis," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 3(2), pages 63-75.
    • Handle: RePEc:rss:jnljee:v3i2p2
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    References listed on IDEAS

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    1. Toda, Hiro Y & Phillips, Peter C B, 1993. "Vector Autoregressions and Causality," Econometrica, Econometric Society, vol. 61(6), pages 1367-1393, November.
    2. Zapata, Hector O & Rambaldi, Alicia N, 1997. "Monte Carlo Evidence on Cointegration and Causation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(2), pages 285-298, May.
    3. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
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    Cited by:

    1. Yingying XU & Zhixin LIU & Jaime ORTIZ, 2018. "Actual and Expected Inflation in the U.S.: A Time-Frequency View," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 42-62, December.
    2. Chi-Wei Su & Jiao-Jiao Fan & Hsu-Ling Chang & Xiao-Lin Li, 2016. "Is there Causal Relationship between Money Supply Growth and Inflation in China? Evidence from Quantity Theory of Money," Review of Development Economics, Wiley Blackwell, vol. 20(3), pages 702-719, August.
    3. Hasan Dinçer & Serhat Yüksel & Fatih Pınarbaşı & Mehmet Ali Alhan, 2020. "Risky Financial Assets in Financial Integration and the Impacts of Derivatives on Banking Returns," World Scientific Book Chapters, in: Stéphane Goutte & Khaled Guesmi (ed.), Risk Factors and Contagion in Commodity Markets and Stocks Markets, chapter 6, pages 133-159, World Scientific Publishing Co. Pte. Ltd..

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