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Article Title:
Restating Milton Friedman's Quantity Theory of Money: An Error Correction Approach (1970-2008)
by Abiola, A and Egbuwalo, M. O.

Abstract:
This study tests the validity of Milton Friedman?s restatement of quantity theory using Nigerian data. The justification for the study is in the determination of major explanatory variables that affect the demand for money in Nigeria. This will assist policy makers and users of the information in knowing how to control those variables to achieve the desired level of money demand. The study made use of time series data spanning thirty-nine years from 1970 to 2008. And because of serial/auto correlation that is normally associated with time series data, co-integration econometric technique was adopted. The unit root test conducted confirmed the existence of non-stationarity in the data. This was, however, corrected after first differencing to avoid spurious result at the end of the study. The result obtained from the OLS estimates shows all the variables apart from that of non-human wealth to human wealth (w) are in conformity with Friedman's model. Whereas the original model specifies a positive relationship between demand for money and that of human wealth to non-human wealth, the result shows a negative relationship which to our thinking follows the declining situation of the Nigeria?s Per Capita Income (PCI) over the years. The reason for this assertion is that human wealth from our model was proxied by Per Capita Income (PCI) and since the PCI forms the numerator, the lower its value over the years, the more it exerts negative impact on the demand for money. Other major conclusion from the work includes the fact that whereas price is positively related to demand for money, change in price over time is negatively related to it. In sum, the study confirms the validity of Milton Friedman's restatement of Quantity theory of money with the exception of the contrary relationship that existed in the variable mentioned above.

Keywords: demand for money, quantity theory, Milton Friedman, co-integration, error correction.

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