THE ASYMMETRIC EFFECT OF MONEY SUPPLY ON INFLATION IN NIGERIA

Abstract

This empirical paper purposively aimed at investigating the asymmetric (non-linear) impact of money supply on inflation in Nigeria. The study utilised Non-Linear Autregressive Distributed Lag Model as its methodology and sourced data from the famous data bank, the World Development Indicators of World Bank, from 1970 to 2022. The research used Unit Root Test to check stationary of the variables, and show that the variables are not integrated in same order; it also used.Bounds Test of Cointegration toindicate the presence of long run relationships, and utilized the Test of Asymmetry to indicate that there exists non-linear ralationship on the concern variables. The post estimated diagnostic checks disclosed that the model, estimated, has no estimation issues, and at the same time, it is dymanically stable. The results revealed that positive effect of the supply of money differs from the negative effect on how it affects inflation in Nigeria. The positive effect is inflationary while the negative effect is deflationary. However, the negative shock outweighs the positive shock; and hence, policymakers are advised to be cautious, especially when implementing contractionary monetary policy to address inflation to avoid a national direction towards a great deflation. The study findings are limited to Nigeria whose 1970-2022 data was used following the methodology utilized (NARDL).