Document Type

Occasional Paper

Publication Title

The Demand for money function in Nigeria: an empirical investigation


This paper provides further empirical evidence on the nature of the demand for money function in Nigeria for the period 1960-1991. The paper also addressed the issue of the appropriate adjustment process, structural stability of the estimated equations, as well as the influence of external factors on money demand function in an open economy, such as Nigeria. The main conclusions which emerged from the analysis are that, the real adjustment mechanism appeared to be the most appropriate adjustment process for modelling money demand in Nigeria; the influence of external variables like the foreign interest rate and exchange rate should not be discounted in any specification of money demand function in Nigeria, the domestic interest rate in addition to inflationary expectations are relevant domestic opportunity cost variables in Nigeria’s demand for money function; there is absence of economies of scale in cash management in Nigeria; and the adjustment period is very long. The battery of diagnostic tests produced conflicting results, making it difficult to select a particular equation for each definition of money as the most adequate representation of the data for the period of analysis.

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