IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 2 NO. 1 2017

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A Comparative Study of Monetary and Keynesian Theories on Inflation and Money Supply in Nigeria

John Okey Onoh and Obioma, James

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Abstract

The study compared the theories of the monetarist and keynesian school of thought with the Nigerian economic policies regarding money supply and inflation over a period of thirty five years (1981-2015). The motivation for this study was borne out of a contentious dispute that there seem not to be any consensus as to which economic theory has been dominant in the Nigerian economic landscape superintended by various governments over time. The hypotheses were premised on the opposing beliefs of these schools of thought as to the effect of money supply on prices. The methodology embarked on was regression analysis. The model of the study was well fitted as the AIC, or Schwarz criterion, shows that the difference between the two is very negligible, an indicator of a near perfect model convergence near zero. The smaller they are the better the fit of your model is (from a statistical perspective) as they reflect a trade-off between the lack of fit and the number of parameters in the model. The goodness of fit of the model testing the effect of money supply on inflation indicates a significantly high variation of 99.3% and 99.2% of inflation by money supply by the R2 and adjusted R2. The ADF seen on table 4.2.2 shows that at 1%, 5% and 10% critical values the values are more negative than ADF test static. The conclusion of this study is to accept the alternate hypothesis which suggests that money supply has a significant effect on inflation and to reject the conjecture in the null hypothesis which said that money supply has no significant effect on inflation. It is the recommendation of this study that monetary policy is better suited to stabilize the economy if it is used to target inflation directly rather than used directly to stimulate the economy. Further recommendations of study include that interest rate regime should be flexible enough to adapt to market based realities. There should be a narrowing of the gap between the interbank rate and the parallel market to av

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