THE LINK BETWEEN MONEY SUPPLY AND INFLATION: THE EXPERIENCE OF NIGERIA’S ECONOMY

Abstract

This study investigates the relationship between money supply and inflation in Nigeria from 2004 
to 2023, using OLS regression and Granger causality tests with key variables (Money Supply (M2), 
Consumer Price index (CPI), Gross domestic Product (GDP), Real Effective Exchange Rate (EXR), 
and Monetary Policy rate (MPR). Results show that money supply significantly raises inflation, 
while GDP and MPR dampen it, and exchange rate volatility intensifies it. The Granger causality 
result reveals that inflation drives money supply rather than the reverse, implying monetary 
expansion in Nigeria is reactive to inflationary pressures. The study concludes that effective 
inflation control requires proactive monetary policy supported by structural reforms to foster 
sustainable economic growth.