Longrun and Causal Dynamics of Financial Deepening on Money Supply in Nigeria: Evidence from a VAR Model

                @article{CRSIJ26000454,
                  author = {Ishaka Audu Jimoh, O. G. Wafure, Ahmad B. El-Yaqub},
                  title = {Longrun and Causal Dynamics of Financial Deepening on Money Supply in Nigeria: Evidence from a VAR Model},
                  journal = {Cosmo Research and Science International Journal},
                  year = {2026},
                  volume = {2},
                  number = {2},
                  pages = {420-454},
                  issn = {3108-1584},
                  url = {https://cosmorsij.com/published/CRSIJ26000454.pdf},
                  abstract = {Globally, financial deepening has been vital in fostering economic growth and stability. Financial deepening envelops the expansion in monetary resources. This study examined the impact of the financial deepening indicators on money supply in Nigeria, by observing the independent contributions of money supply, market capitalization, credit to private sector, all share index, access to financial services and financial inclusion to the growth of the economy, using annual series data between 1986 and 2024. By basing the study on Vector Autoregressive Estimates methods of analyses, the results indicated that while market capitalization and access to financial services had positive and statistically significant impact on the money supply over time, credit to private sector, all share index and financial inclusion declined and the outcomes in terms of money supply growth and development were statistically insignificant, implying that the deepening of the financial system in the country was insignificant as its impact on the economy was found to be majorly negative. The Granger Causality Test result shows that there is existence of independence between credit to private sector and money supply; between money supply and market capitalization; between access to financial services and money supply; between money supply and all share index and between financial inclusion and money supply in Nigeria. Suggesting that financial deepening does not cause money supply in Nigeria. Thus, the study, recommended that monetary authority especially the central bank and commercial banks should allocate credit to the private sector. Sectors such as agricultural sector and industrial sector should be considered as the vital instrument for economic growth and development machinery and formulate laws to check the loans defaulter. More so, the monetary authority should regulate her policy rates and other policies, like the cash reserve ratio, to increase the level of banking system liquidity. By this it will automatically increase banks' lending size to the private sector. The study also recommended financial liberalization in the economy and the need to ease financial repression, helps in regulating credit controls and allowing market to determined real interest rates.},
                  keywords = {VAR Model, Financial Deepening Indicators, Money Supply, Nigeria},
                  month = {September}
        }