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Fiscal Policy Determinants of Money Demand in Nigeria: ARDL Bound Testing Approach

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  • Raymond Osi Alenoghena

    (University of Lagos, Department of Economics, Akoka Lagos, Nigeria)

Abstract

The study examines the fiscal policy determinants of money demand in Nigeria using annual time series data from 1981 to 2017. The study intends to determine the effects of fiscal policy variables on money demand in Nigeria. A modified Fisher money demand model was estimated using ARDL to capture the long-run equilibrium relationship between the variables. The results showed that the fiscal policy variables had a stable long-run equilibrium relationship with money demand in Nigeria. Among the fiscal policy variables examined, government spending was found to be most impactful on the demand for money in the reverse direction. Furthermore, while government revenue and budget deficit have positive and significant effect on money demand, the effect of income was on significant. Also, government revenue and government expenditure granger caused demand for money. Overall, fiscal policy variables constitute strong influence on variations in money demand in Nigeria. The monetary authority in the country should take into account the influence of fiscal policy variables in planning the target level of money demand and monetary policy in Nigeria.

Suggested Citation

  • Raymond Osi Alenoghena, 2019. "Fiscal Policy Determinants of Money Demand in Nigeria: ARDL Bound Testing Approach," Ovidius University Annals, Economic Sciences Series, Ovidius University of Constantza, Faculty of Economic Sciences, vol. 0(2), pages 13-22, December.
    • Handle: RePEc:ovi:oviste:v:xix:y:2019:i:2:p:13-22
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    References listed on IDEAS

    as
    1. Esmaeil Ebadi, 2018. "On the Measurement of the Government Spending Multiplier in the United States: an ARDL Cointegration Approach," Economic Research Guardian, Mutascu Publishing, vol. 8(1), pages 2-10, June.
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    3. Mohsen Bahmani‐Oskooee & Abera Gelan, 2009. "How stable is the demand for money in African countries?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 36(3), pages 216-235, July.
    4. Jarita Duasa, 2007. "Determinants of Malaysian Trade Balance: An ARDL Bound Testing Approach," Global Economic Review, Taylor & Francis Journals, vol. 36(1), pages 89-102.
    5. Ebadi, Esmaeil, 2018. "On the Effect of Government Spending on Money Demand in the United States: An ARDL Cointegration Approach," MPRA Paper 86399, University Library of Munich, Germany.
    6. Mankiw, N Gregory & Summers, Lawrence H, 1986. "Money Demand and the Effects of Fiscal Policies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(4), pages 415-429, November.
    7. Ernest Simeon O. Odior & Raymond Osi Alenoghena, 2016. "Empirical Verification of Milton Friedman’s Theory of Demand for Real Money Balancesin Nigeria: Generalized Linear Model Analysis," Journal of Empirical Economics, Research Academy of Social Sciences, vol. 5(1), pages 35-50.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Money Demand; Government Expenditure; Government Revenue; Budget Deficit; Auto-regressive Distributed Lag Model (ARDL);
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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