Nigeria: An Extension of Microeconomic Perspective of Demand for Money
Abstract
The study examines the microeconomic foundation of money demand in Nigeria. It adopted weighted aggregate value of wealth to examine the problem of aggregation of monetary variables in Nigeria. Empirical analysis of the data from 1980 to 2004 using a co-integration test reveals an equilibrium behavior of money demand, wealth, composite consumer price index, and private consumption. It reinforces the fact that co-integration is purely a means to an end in analyzing the long-run relationship among variables. However, the use of simple sum aggregated variables in this study despite its being problematic yields different results. The micro attempt at aggregating these variables is therefore a probable solution to the problem at hand. The result shows that a positive impact of private consumption on money demand is negligible. On the other hand, the increase in inflation continues to pose a serious challenge to money demand,thus raising the desire to hold money. The demand for money consequently increases significantly as the wealth of few Nigerians increases.Key words: Demand for money, value of wealth, monetary variables, co-integration test., Nigeria.References
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