Level indicating the possibility of convergence to

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level indicating the possibility of convergence to equilibrium in each period with intermediate adjustment captured by the difference terms. The findings reveal that some key macroeconomic fundamentals in Nigeria’s economy interact in each period to re-establish the long-run equilibrium in economic growth following a short- run random disturbance. The empirical result from the estimation of the long-run co-integration equation normalized on economic growth in the country thus revealing a significant relationship with respect to Money
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Impact of Money Supply and Inflation on Economic Growth in Nigeria (1973-2013) DOI: 10.9790/5933-0803042637 www.iosrjournals.org 35 | Page Supply and Inflation. However, based on the findings of this study, it could be concluded that: money supply has contributed positively to economic growth in the long-run, while in the short-run the opposite has been the case. In addition, inflation has considerably induced economic growth in the short-run while in the long-run it has hampered growth significantly; interest rate has not been friendly to growth, it has hampered and discouraged economic growth significantly in both periods for the years under review (1973-2013). Thus, the nature of the relationship is such that money supply has significant positive impact on economic growth in the long-run as inflation recorded the same in the short-run while, money supply was negative in short-run as inflation in the long-run . Only interest rate revealed significant negative influence on economic growth in both periods. Arising from the above findings, the paper recommends the following policies: Firstly, government through the apex bank should make sure that Nigerian financial institutions are safe and sound; and fine-tune the interest rates that will not raise the level of inflation or jeopardizes investors’ investment objective. Secondly, expansionary monetary policy is advised to be implemented to guide against higher cost of capital, which make loan unattractive for productive purposes. This may be in form of zero interest base finance on a selective basis could be introduced; this is capable of raising investment in the real sector which will eventually influence economic growth. Thirdly, SMEs funding and development has been identified as a very good scheme designed to tap the opportunity in the real sector on both short and long-term basis (Ogunmuyiwa and Francis (2010)), therefore, financial institutions should not only make funds available to drive the real sector on short-run basis but also sh ould make the fund’s accessibility less stringent. Fourthly, the result revealed that inflation is a decreasing function of growth in output in the long-run. To curtail this devastating impact, fiscal policy should be design in such a way that could boost real sectors (industrial, mining and agricultural sectors) that have been identified as key to national development. This will boost supply of output and reduce prices. Likewise, monetary policy strategy such as inflation targeting should be pursued vigorously to achieve a minimum and tolerable rate of inflation.
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