Money Demand and Supply under Market Disequilibrium: Evidence from Nigeria

This paper argues that for economies that have structural rigidities and irregularities, the received knowledge of equilibrium in the demand and supply of money should be interrogated. The paper proposes a third variable – equilibrium bias – to test its significance. Using quarterly time series data for Nigeria from 2008Q1-2016Q2, a money demand function was estimated with the aid of Ordinary Least Square Method in a coefficients and standard errors bootstrap approach. The result found that due to structural rigidities and irregularities in the economy, the variable income though significant posted result against a priori expectation and the equilibrium bias variable was significant which justifies its use.