The Effects of Money Supply on Interest Rates

Student: Ahmad Alhassan (Project, 2025)
Department of Economics
Northwest University, Kano, Kano State

Abstract

This thesis work examines the effects of money supply on interest rates in Nigeria from 1970-
2023, by applying the Auto-regressive distributive lag approach. The choice of this period is
to enable us focus strictly on the era of market-based monetary regime in Nigeria. The results
confirm a negative effect of money supply on interest rates. This result relies on the liquidity
frame theory. While, fiscal deficits indicated a positive relation with interest rate. The
granger causality indicated a bilateral relation between money supply and interest rate. It is
recommended that for government to stimulate investment for economic growth, they should
reduce interest rate by expanding money supply. The government should also discouraged
unnecessary spending to bring down interest rate. Moreover, where deficit financing is
inevitable, it should be put into productive activities in order to create more employment
opportunities, raise national output, and increase the living standard of the people.

Keywords
effects money supply interest rates
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