MONEY SUPPLY AND INFLATION NEXUS IN NIGERIA: THE ROLE OF EXPECTATIONS AND FISCAL OPERATIONS

Here, the inspiration of ‘money supply on inflation in Nigeria’ was studied by making reference to the sway of expectations and fiscal operations of the government. The paper put to use data that considered thirty-five (35) years data point ranging from 1986 through 2020. The study utilized the ‘autoregressive distributed lag’ (ARDL) technique and ‘Granger Causality’ test in analysing the data. Given the ARDL result, we observed that expectation has a substantial sway on the present inflation. Further, the F-Bounds test
result reported that cointegration exists, leading to the estimation of the short-run dynamic ‘error correction model’ and the long-run estimates. In the short-run, it was observed that changes in money supply wielded no significant influence on the variations in the rate of inflation; while output growth and fiscal depth wielded a negative and significant sway. In the long-run, it was discovered that broad money supply wielded a positive and substantial influence while output growth put forth a negative and significant effect. The
fiscal depth of the government was observed to wield a positive though an insignificant long-run influence on the rate of inflation. The result from the Granger causality test supported that growth in money supply causes inflation. It follows from the findings that for inflation to be tackled successfully, there is need to maintain a stable level of money supply along with maintaining a substantial growth in output, while maintaining the fiscal depth within the 25% as suggested in the critical limit hypothesis.