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Output Uncertainty, Monetary Uncertainty and the Nigerian Demand for Money

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  • Olalekan Bashir Aworinde

    (Tai Solarin University of Education)

Abstract

The study examines the stability of money demand in Nigeria for the period 1960-2015 by including two GARCH-based measures of output uncertainty and monetary uncertainty. These two measures of uncertainty were included in the money demand function for Nigeria because they could affect public’s holding of money. Prior studies: Previous only examined the stability of money in Nigeria without examining the possiblity of uncertainties in monetary and output aggregates, a gap which this study fills. Approach: The study used the nonlinear autoregressive distributed lag (NARDL) to examine the short and long-run relationship. Results: It was discovered that only monetary volatility exert significant impact on the demand for money in Nigeria both in the short run and in the long run. However, output volatility is not significant both in short-run and the long run. In addition, including the two uncertainty measures yield a stable demand for money in Nigeria. Implication: Monetary uncertainty has strong substitution effects as compared to precautionary effects and that Nigerians substitute cash by shifting to alternative assets. Value: The study contributed to the literature by examining the non-linearity and uncertainties in the stability for demand for money in Nigeria.

Suggested Citation

  • Olalekan Bashir Aworinde, 2018. "Output Uncertainty, Monetary Uncertainty and the Nigerian Demand for Money," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 14(3), pages 173-185, JUNE.
    • Handle: RePEc:dug:actaec:y:2018:i:3:p:173-185
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    File URL: http://journals.univ-danubius.ro/index.php/oeconomica/article/view/4644/4474
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