<abstract xmlns="http://www.w3.org/1999/xhtml">

<bold>Research background:</bold> There is no consensus among scholars on the interaction effect between money supply, price, and wages despite various studies conducted to that effect.
<bold>Purpose:</bold> This study investigates whether the neutrality of money assumption holds in the long run in Nigeria, using annual data from 1970 to 2018.
<bold>Research methodology:</bold> The study utilized the Johansen cointegration test and the Vector Error Correction (VECM) approach for estimation.
<bold>Results:</bold> The results from the Phillips curve model contradict the classical school of economics assumption that money is neutral in the long run. This implies that in the Nigerian economy, money is not neutral in the long run. The long run Fishers’ effect model shows that the coefficient of LOG (CPI) exhibits a negative sign and is statistically significant at a 5% significant level, thus contradicting the hypothesis which states that a one percent increase in consumer prices will lead to an increase in the rate of interest by one percent. The coefficient of nominal money supply indicates a negative sign and insignificant statistically on the interest rate. The Short-run estimated results showed that the coefficient of the error correction term ECM (–1) indicates a negative sign and is significant statistically in the Fishers’ effect model. The result shows the actual and equilibrium values are corrected with adjustment speeds equal to 31% yearly.
<bold>Novelty:</bold> The study recommends that the Central Bank of Nigeria should ensure an effective implementation of monetary targeting measures in fine-tuning the economy and curbing inflationary pressures.
</abstract>

Research background: There is no consensus among scholars on the interaction effect between money supply, price, and wages despite various studies conducted to that effect.
Purpose: This study investigates whether the neutrality of money assumption holds in the long run in Nigeria, using annual data from 1970 to 2018.
Research methodology: The study utilized the Johansen cointegration test and the Vector Error Correction (VECM) approach for estimation.
Results: The results from the Phillips curve model contradict the classical school of economics assumption that money is neutral in the long run. This implies that in the Nigerian economy, money is not neutral in the long run. The long run Fishers’ effect model shows that the coefficient of LOG (CPI) exhibits a negative sign and is statistically significant at a 5% significant level, thus contradicting the hypothesis which states that a one percent increase in consumer prices will lead to an increase in the rate of interest by one percent. The coefficient of nominal money supply indicates a negative sign and insignificant statistically on the interest rate. The Short-run estimated results showed that the coefficient of the error correction term ECM (–1) indicates a negative sign and is significant statistically in the Fishers’ effect model. The result shows the actual and equilibrium values are corrected with adjustment speeds equal to 31% yearly.
Novelty: The study recommends that the Central Bank of Nigeria should ensure an effective implementation of monetary targeting measures in fine-tuning the economy and curbing inflationary pressures.

Testing the Validity of the Long Run Neutrality of Money in Nigeria

Folia Oeconomica Stetinensia

This work is licensed under the Creative Commons Attribution-ShareAlike 4.0 International License.

{"article-title":"Testing the Validity of the Long Run Neutrality of Money in Nigeria"}

Research background: There is no consensus among scholars on the interaction effect between money supply, price, and wages despite various studies conducted to...

Testing the Validity of the Long Run Neutrality of Money in Nigeria

Published Online: Nov 26, 2021

Page range: 148 - 167

Received: May 19, 2021

Accepted: Oct 22, 2021

DOI: https://doi.org/10.2478/foli-2021-0021

Keywords
Money neutrality, money supply, Phillips Curve, Fisher effect, cointegration, VECM

© 2021 Ephraim Ugwu et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-ShareAlike 4.0 International License.

Testing the Validity of the Long Run Neutrality of Money in Nigeria

Published Online: Nov 26, 2021

Page range: 148 - 167

Received: May 19, 2021

Accepted: Oct 22, 2021

DOI: https://doi.org/10.2478/foli-2021-0021

KeywordsMoney neutrality, money supply, Phillips Curve, Fisher effect, cointegration, VECM

© 2021 Ephraim Ugwu et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-ShareAlike 4.0 International License.

Keywords
Money neutrality, money supply, Phillips Curve, Fisher effect, cointegration, VECM