This finding is similar to the results of mishra 2010

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not out of place to obtain a result in which growth in income causes money supply. This finding is similar to the results of Mishra (2010) and Ahmad and Suleiman (2011). Further, in the result, bidirectional causality is found to exist between money supply and inflation in line with the classical and Keynesian views. Similar to this result is the findings of Mishra (2010) and Ogunmuyiwa (2010). A situation in which inflation causes aggregate money stock could be attributed to government policy aims at breaching the gap between nominal and real value of money that more money is supplied. While money supply causing inflation has a very strong root in theoretical propositions of the quantity theory of money by the classical and Keynesian economists. It is believed when money supply increases, income also does and purchasing power goes up without a proportional increase supply, will result into rise in the prices of the little available goods. This kind of inflation is regarded as demand-pull inflation. Finally, a unidirectional causality is also found running from broad money supply to real interest rate. A priori, an increase in aggregate money supply result into falling rate of interest rate. It is believed that an expansionary monetary policy that increases total money stock will tend to drive down the rate of interest and thereby increases investment and boost economic growth through the real sector. The above provides further support to the long run estimates in which money supply has a significant positive impact on economic growth. 4.4.3 Diagnostic Test Results Table 6 : Diagnostic Tests Results Tests Coefficients Prob 0.90195 0.9258 (LM Stat) 13.94697 0.6027 352.98 0.3025 2.9766 0.9358 Source: Au thors’ computation using E view 7.1 In table (7), the Lagranger multiplier (LM) shows that there is no serial correlation at the chosen lag. In addition, the model passes the normality test through the joint Jarque Bera (JB) statistics indicating that residuals have normal and identical distribution. It also passes through the heteroskedasticity test with the chi- square distribution of 352. The adjustment co-efficient is also significant and correctly signed i.e negative which indicates that the restrictions are meaningful. Stability test indicates that the model is stable and adequate for policy recommendation because it satisfies stability condition since the modulus values are less than one (0.9258) even at lag 5. VI. Conclusions And Recommendations The paper empirically investigates the impact of money supply and inflation on economic growth in Nigeria from 1973-2013 using Vector Error Correction framework. The stationarity properties of the data employed in the model was first investigated using Augmented Dickey-Fuller unit root test and Phillip-Peron test. The result indicates that the series used in the analysis were 1(0). The results of the co integration test based on Johansen’s procedure indicated the existence of co -integration between economic growth, money supply and inflation in Nigeria. The ECM term had the appropriate sign and was statistically significant at 5% probability
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