FOREIGN RESERVE CHANGES, DOMESTIC CREDIT AND OUTPUT IN NIGERIA: ANY CAUSALITY?

This study considered the causality that exist among foreign reserve changes, domestic credit and output in Nigeria. There was a robust review of relevant literature. The estimated empirical model of this study leaned on the reviewed literature to mimic the works of Arshad (2008) for Pakistan, Iwedi (2012), Oluitan (2012) for Nigeria. The Granger causality test results indicated that unidirectional causality runs consistently from domestic credit to foreign reserve across the examined lags. This implies that domestic credit causes total reserve and the converse does not exist. The results also revealed that, output Granger causes total domestic credit at lags one and two. The reverse of this unidirectional causality does not hold. At lag three, causality does not exist between the duos. No causality occurred between domestic credit and output across the three lags. On the basis of the empirical findings of this study, the authors recommended that the authorities concerned should have eye on the foreign reserve whenever they intent to tinker the size of the domestic credit. A reasonable size of output should be maintained in readiness for the time(s) when scaling up domestic credit makes economic sense.