IIARD International Institute of Academic Research and Development

WORLD JOURNAL OF FINANCE AND INVESTMENT RESEARCH (WJFIR )

E-ISSN 2550-7125
P-ISSN 2682-5902
VOL. 7 NO. 2 2023
DOI: https://doi.org/10.56201/wjfir.v7.no2.2023.pg77.98

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Money Supply and the Liquidity of Deposit Money Banks in Nigeria

Omubo - Pepple Stella Nathan

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Abstract

This study examined the effect of money supply on the liquidity of deposit money banks in Nigeria. The objective was to study the extent of money supply on the liquidity of deposit money banks. Time series data were sourced from Central Bank Statistical Bulletin from 1987-2021. Liquidity of deposit money banks was modeled as the function of narrow money supply, quasi money, broad money (M2) and broad money (M3). Ordinary least square methods of unit root test, cointegration and Vector Error Correction. Findings of the study revealed that money supply explained 76% variation in liquidity of commercial banks in Nigeria while the remaining 24% is traceable to exogenous variables not captured in the model and further proved that narrow money supply have positive and significant effect, quasi money have negative but no significant effect, broad money supply (M2) have positive and significant effect while broad money supply (M3) have positive but no significant effect on the liquidity of commercial banks over the periods of the study. The study concludes that narrow money supply have positive and significant effect on the liquidity of commercial banks, the null hypothesis is not accepted. Quasi money have negative but no significant effect on the liquidity of commercial banks, the null hypothesis is accepted, broad money supply (M2) have positive and significant effect on the liquidity of commercial banks, the null hypothesis is not accepted while broad money supply (M3) have positive but no significant effect on the liquidity of commercial banks, the null hypothesis is accepted. The study recommends that monetary authorities should ensure adequate money supply in the economy as this determines the liquidity of the financial market at large and policies should be deepened the operations of deposit money banks to ensure that money supply goes through the banking sector. There is need to regulate access to money through electronic channels as frequent

keywords:

Money Supply, Liquidity, Deposit Money Banks, Nigeria

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