Estimating Inflation Rate And Money Demand In Nigeria Using The Generalized Polynomial Regression
Loading...
Date
2018-10-11
Authors
Journal Title
Journal ISSN
Volume Title
Publisher
iSTEAMS Multidisciplinary Cross-Border Conference
Abstract
Inflation plays an important role in demand for money (M1). M1 is a function of inflation rate besides the rates of return of alternative assets and real income. The study aimed to empirically investigate the role of inflation on money demand function in Nigeria. The data collected was analysed using Polynomial regression. The quarterly time series data over the period from 1990:01 through 2017:04 was obtained from the Statistical Bulletin of the Central Bank of Nigeria (CBN) for monetary aggregates ( ), consumer price index and gross domestic product. Results of polynomial
regression show that the relationship between inflation and demand on is nonlinear and represents a parabola. When the inflation rate increases above 3.64 percent, relationship between inflation and demand for will become negative. Results of polynomial regression model also shows that inflation is negative in relation to money demand; when the rate of inflation is above a critical level of inflation. Relationship between inflation and money demand follows the quadratic function. Demand for is only a function of rate of inflation and real income because treasury bills rate is statistically insignificant. During the high inflation period, inflation is negatively correlated with money demand. High money growth is consistent with high inflation, a low real money demand (high money velocity). In conclusion, empirical evidence suggests that money velocity is in general volatile, contradicting the assumption of a stable money demand.
Description
Keywords
Polynomial regression, Monetary aggregates, Inflation rate, Money velocity