The role of money market in any
economy continue to enjoy debates, hence a number of studies have evolved over
the years. Money markets play a key role
in banks liquidity management and the transmission of monetary policy (Rigg and
Zibell, 2009). In normal times money markets are among the most liquid in the
financial sector by providing the appropriate instrument and partners for
liquidity trading, the money markets allows the refinancing of short and medium
terms position which facilitates the mitigation of your business liquidity
risk.
Among the leading
studies on money market, its role in the economy is the research carried by
Owoye and Onafawora (2007). Analyzing the relationship between money supply
(M2), the stability of real money demand and effects of deviation of actual
real Nigerian economy since the introduction of the Structural Adjustment
Programme (SAP) in 1986 found that long – run relationship exists between the
real (world) broad money supply, real GDP, inflation rate, domestic interest rate
foreign interest rate, and expected exchange rate. Ezirim and Eneta (2006)
while studying discount houses, the money market and the Nigeria economy, X –
rayed the operations of discount houses in Nigeria economy in general.
They
recognized the central roles which discount houses play in the open market
operations of the central bank (central bank of Nigeria, 2004; Ezirim, 2005).
From the inception discount houses in achieving their expected objectives could
be made. For their study, they were particularly interested in analyzing the
operations of discount housed to expose their relationship with the performance
of the money market and the entire economy. They employed estimation and
analysis of regression models in their investigation covering the period of
1993 to 2004, involving the 5 discount houses in Nigeria at the time.
The
deponent variable in the study were the operational performance indices of the
money market and the entire economy namely, the total value of the operations
of the money market and the real gross domestic product (GDP) respectively. The
independent variables were the operational performance indices of the discount
houses, namely the discount houses shareholders’ funds and the discount assets.
The researcher found a significant relationship of the independent and
dependent variables. So, they rejected the null hypothesis of no significant
relationship. They concluded that discount houses operations in Nigeria affect
the Nigeria money market and economy both positively and significantly.
Ogunmuyiwa and Ekonne (2010) in
studying the impact of money supply and economic growth between 1980 and 2006
found that aggregate money supply is positively
related to economic growth and development even through money supply
does not have significant predictive power in predicting growth of real GDP.
In studying the Chinese macro –
economy for the effects of money on price level and output, Chow and Shen
(2004) in attempt to explain inflation from 1954 – 2002. Using vector auto –
regression, they found that output react to money disturbances first, but for a
short period and prices later but last longer to the Chinese economy. Trying
out the vector – auto regression with data from the United States, they found a
similar pattern of occurrences, confirming the proposition of tried man and its
universality (Bermanke, 2003). They concluded that in spite of the
institutional differences between China and the more developed economics, from
which empirical evidence supporting freed man’s proposition was drawn, the same
theory of inflation and of the effects of monetary disturbances on price and
output applies.
Ajisafe and Foluronsho (2002),
studied the relative effectiveness of monetary policy and fiscal policy on
economic activity. The authors used annual series data for 1970 to 1998 from
the central bank of Nigeria (CBN) statistical bulletin. They found from the
result of their analyses that monetary rather than fiscal policy exerts a
greater impact on economic activity in Nigeria, even though they found that
both monetary and fiscal policies should be complimentary.