Empirical Analysis of the Relationship Between Money Supply, Inflation, and Economic Growth in Nigeria: A Vector Autoregression Approach

This study conducts an empirical investigation of the dynamic relationships among money supply growth, inflation rates, and real economic growth in Nigeria using a vector autoregression framework, contributing to the econometric literature on monetary transmission mechanisms in oil-dependent developing economies. Despite extensive policy debates surrounding the Central Bank of Nigeria's monetary targeting framework, rigorous multivariate time series analyses of these relationships remain limited in the literature for the post-2015 period, when structural changes in Nigeria's foreign exchange management and oil price shocks fundamentally altered monetary dynamics. Quarterly time series data on broad money supply, consumer price index, and real gross domestic product for the period 2000 to 2023 are sourced from the Central Bank of Nigeria Statistical Bulletin and the National Bureau of Statistics. Augmented Dickey-Fuller and Phillips-Perron unit root tests are applied, followed by Johansen cointegration tests to assess long-run equilibrium relationships. A vector autoregression model in first differences is estimated, and Granger causality tests, impulse response functions, and forecast error variance decompositions are computed to characterise the dynamic interactions among variables. Structural break tests identify the 2016 recession and the 2020 COVID-19 contraction as periods of parameter instability. Results confirm a positive bidirectional Granger causality between money supply growth and inflation, but a statistically weak and unstable link between monetary expansion and real output growth. Keywords: vector autoregression, money supply, inflation, economic growth, Nigeria