Chigbu, Emmanuel Ezeji (Ph.D) and Okorontah, Chikeziem Fortunatus
This study investigates the exogeneity of the money supply using annual data from 1970-2008. The tests applied investigated the plausibility of the classical hypotheses. We employed the two stage least square method, the Johansen’s cointegration procedures and the Granger causality approach. The findings show that there exists a long run relationship between money supply and the included variables. The real interest rate and real income Granger cause the growth of money. Moreover, Granger’s causal relation between them was unidirectional from real interest rate, real income to money supply. Our main contribution is having demonstrated that money supply was endogenous with respect to the value of money, real income and real interest rate meaning that the monetary policy had influence to some extent on money supply but economic activities had greater influence in determining the rate of money growth. This study, therefore, recommends that the government and monetary authorities should undertake regulated/guided policies that would enhance economic activities for steady growth of money supply.
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