Abstract
This study delves into the complex relationships between currency hoarding, monetary policy, and aggregate savings in Nigeria during the period from 1990 to 2020. The main objectives of this research are to examine these relationships and provide valuable insights to guide policy decisions for enhancing economic resilience. To achieve these objectives, the study employs an Error CorrectionModel (ECM) methodology. This approach allows for a comprehensive analysis of both short-term deviations and long-term equilibrium relationships among the key variables, which include Currency in Circulation as a percentage of GDP (CPG), Interest Rate (INTR), Money Supply (MS), and an interaction term (CHMP). The findings of this investigation reveal several significant insights. Firstly, it was found that higher currency hoarding, represented by the variable CHMP, significantly reduces aggregate savings (AS). Specifically, a one-unit increase in CHMP results in a substantial estimated decrease of 1.00551% in aggregate savings, highlighting a negative relationship between these factors. Moreover, increases in the percentage of currency in circulation (CPG) were associated with higher aggregate savings, although this relationship did not achieve statistical significance. Interest rates (INTR) displayed a minor and statistically insignificant positive impact on aggregate savings, contradicting initial expectations. Conversely, the study found that an increase in money supply (MS) had a strong and statistically significant positive effect on aggregate savings, emphasizing the crucial role of effective money supply management. Based on these findings, the study recommends various policy actions, including measures to reduce currency hoarding, prudent money supply management, interest rate policies, financial inclusion initiatives, and macroprudential regulations. These recommendations offer a comprehensive roadmap for policy decisions that can improve aggregate savings and fortify Nigeria’s economic resilience.
