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ABSTRACT
This research investigates the intricate relationship between currency hoarding, monetary policy, and aggregate investment in Nigeria. Using an Error Correction Model (ECM) and data spanning from 1981 to 2020, the study seeks to understand how currency in circulation as a percentage of GDP (CPG), interest rates (INTR), exchange rates (EXCH), and money supply (MONEYS) impact investment dynamics in the Nigerian economy. viii The findings reveal significant insights into these variables. An increase in CPG is positively associated with aggregate investment, signifying its importance in stimulating economic activity. However, the relationship between interest rates and investment is complex, with changes in interest rates showing a positive but statistically insignificant effect. Exchange rate fluctuations do not significantly impact investment, emphasizing the value of maintaining exchange rate stability. A surprising discovery is that an increase in money supply has a significant negative impact on aggregate investment, contrary to conventional expectations. In light of these findings, policymakers should ensure a balanced supply of currency, exercise caution when adjusting interest rates, maintain exchange rate stability, and thoroughly review monetary policy frameworks. A comprehensive approach, encompassing monetary, fiscal, and structural policies, is recommended to foster sustainable economic growth and investment in Nigeria.
