EFFECT OF MONEY SUPPLY ON OUTPUT GAP IN NIGERIA
EFFECT OF MONEY SUPPLY ON OUTPUT GAP IN NIGERIA

Summary/Abstract: Estimate of output gap serves as the parameter used by policy makers in deciding the direction of a nation through the use of relevant monetary and fiscal policy instruments. However, the empirical link between output gap and other macroeconomic aggregates such as money supply has been scantly documented. This study examined the effect of money supply on output gap in Nigeria. The study adopted expost research design and used secondary data from 1994-2023, obtained from the World Development Bank Indicators (WDI). Data was analysed using Autoregressive Distributed Lag model (ARDL). The result showed that money supply (β = -0.1793, t = -0.0513) has a negative impact on output gap in the short-run while its effect (β = 22.5016, t = 7.6706) on output gap is positive in the long-run. The positive impact of money supply in the long run signifies that in the long term; money supply has a substantial impact on output gap. This study recommends the need to maintain prudent monetary policies to ensure stable money supply growth which can positively influence economic output over the long term.

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