Revisiting the Money Supply and Real Output Nexus in Nigeria: Test of Neutrality Proposition?

Abstract

This study investigates the money supply-real output nexus while examining the neutrality hypothesis for Nigeria utilizing data from 1980 to 2022. The study used the autoregressive distributed lag (ARDL) technique and the discrete threshold regression model. The finding supports the money neutrality hypothesis in the long run but non-neutrality in the short run. In order words, money supply does not have a significant influence on real output growth in the long-term but does in the short-term. Inflation was found to have a reducing consequence on real output growth in the long and short term, while real effective exchange rates have a reducing effect on real output in the long run but advance in the short run. Structural breaks before the year 2000 have a significant influence on GDP growth in both the long and short run. Sequel to these outcomes, the study suggests an optimum fiscal policy mix with modest monetary policy should be adopted in Nigeria with more attention on the fiscal responsibility of the government to influence changes in real variables. More so, the CBN should urgently begin to announce specific inflation targets for the country since it has a reducing impact on GDP growth in the long run while ensuring the attainment of a more realistic exchange rate for the naira by increasing domestic production for export in the long run.