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Financial liberalization and long-run stability of money demand in Nigeria


  • Folarin, Oludele
  • Asongu, Simplice


A stable money demand function is essential when using monetary aggregate as a monetary policy. Thus, there is need to examine the stability of the money demand function in Nigeria after the deregulation of the financial sector. To achieve this, the study employed CUSUM (cumulative sum) and CUSUMSQ (CUSUM squared) tests after using autoregressive distributive lag bounds test to determine the existence of a long run relationship between monetary aggregate and its determinant. Results of the study show that a long-run relationship holds and that the demand for money is stable in Nigeria. In addition, the inflation rate is found to be a better proxy for an opportunity variable when compared to interest rate. The main implication of the study is that interest rate is ineffective as a monetary policy instrument in Nigeria.

Suggested Citation

  • Folarin, Oludele & Asongu, Simplice, 2017. "Financial liberalization and long-run stability of money demand in Nigeria," MPRA Paper 81190, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:81190

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    References listed on IDEAS

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    More about this item


    Stable; demand for money; bounds test;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money

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