| Abstract: | This study challenges the conventional estimation of the money demand function and questions the appropriateness of the money demand functions that have been estimated particularly in the Nigerian context. It reports new empirical evidence on the demand for money under rational expectations of quarterly data for Nigeria for the period 1980-1996. From a methodological point of view, it extends most previous studies in four directions: it explicitly incorporates and estimates rational expectations in the money demand function; it uses more recent data; rather than a specific version of the rational expectations hypothesis, the study presents a methodology for empirically testing the restrictions imposed by the data on this assumption; rather than proceeding with a unique a priori specification of the rational expectations hypothesis, the study considers the sensitivity of empirical evidence on the demand for money to alternative versions of the rational expectations hypothesis. The evidence indicates that lagged inflation rate, lagged money growth rate, import-output ratio, exchange rate depreciation and productivity growth provide important information for predicting future inflation in Nigeria. In the case of the money demand funcion, it was found that real income, exchange rate, and rational expectations of inflation are significant determinants of money demand in Nigeria during the period under review. Bibliogr., notes, ref., sum. [ASC Leiden abstract] |
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