Munich Personal RePEc Archive

An Examination of the Neutrality of US Money Supply on the Nigerian Economy

Nwanne, Nkem (2017): An Examination of the Neutrality of US Money Supply on the Nigerian Economy.

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Abstract

Literature on the classical dichotomy has focused on single economies with empirical evidence either substantiating or refuting the neutrality of money hypothesis. However this paper focuses on the neutrality of foreign money supply – in this case the US broad money supply – and its neutrality in both the long and short run on the real and nominal variables of the Nigerian economy. Based on data culled from the World Development Indicators (WDI) and time series methods such as the Augmented Dickey Fuller test, Johansen trace and maximum eigen value tests and the Vector Error Correction estimation; the US money supply was found to be non-neutral in both the long and short runs. US monetary policy was found to have profound impact on Nigerian interest rates followed by the consumer price index and the gross domestic product. This paper concludes that the US monetary policy must be a veritable factor considered in the design of monetary policy rules.

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