Is Inflation Always and Everywhere a Monetary Phenomenon? Evidence from Nigeria: 1980 - 2016

Abstract

Money supply is thought as capable of increasing inflation and the output level in an economy. In Nigeria however, monetary growth is seen to have been accompanied with increases in the price level over the years. This study is aimed at evaluating the existing relationship between Money Supply and Inflation in Nigeria between 1980-2016. To achieve this, the study employed the use of the ARDL bound testing approach to co-integration on the annual series of broad Money supply, CPI and the exchange rate. After correcting for the apparent structural breaks in the series, the long run result established that both money supply and the exchange rate were found to have positive impact of 0.31% and 0.96% on the inflation rate. This finding lends empirical support to the monetarist view of inflation. The study therefore recommends as thus: the monetary authority should consider an alternative framework for monetary policy that will better anchor prices- say Nominal-GDP targeting as the current monetary targeting regime appears to be inefficient in anchoring price.