Empirical modeling of money shocks, price and output behaviour in Nigeria (1961 to 2011)

 

Matthew Abiodun Dada

 

Research Article | Published June 2014

Journal of Economics and International Business Management, Vol. 2(2), pp. 42-49

 

Department of Economics, College of Social and Management Sciences, Wellspring University, Benin City, Nigeria.

 

E-mail: mattabey@yahoo.com.  Tel: +234-802-392-1681.

 

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This study examined the nature of interaction between money shocks, price and output in Nigeria using time series data (1961 to 2011). The study employed VAR based on impulse response functions (IRFs) and variance decomposition (VD) analytical techniques. The results showed that both price and output respond positively to money shocks and that money shocks significantly influenced price and output. Money supply constituted the greater source of shocks to output and vice-versa. The implication is that money expansion has greater impact on output than on price. The findings verify the proposition that monetary policy is a veritable tool for price stabilization especially in high inflation countries like Nigeria. The study concluded that money is non-neutral and non-exogenous in the long-run.

 

Keywords: Money shocks, price, output, impulse response functions, variance decomposition, Nigeria.