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Theoretical and Applied Economics
No. 2 / 2021 (627), Summer

An impulse response function analysis of the impact of modern payment technologies on money demand in Nigeria

Veritas University Abuja, Nigeria
Veritas University Abuja, Nigeria

Abstract. In order to assess the efficacy of modern payment technologies in facilitating access to liquidity services in Nigeria, this study employs impulse response function (IRF) analysis and variance decomposition (VD) analysis to study the relationship between modern payment technology patronage and money demanded primarily for liquidity services (currency) in the Nigerian economy during the period 2009Q1 to 2019Q1. Firstly, via impulse response function (IRF) analysis, the study finds that the money demanded primarily for liquidity services responds positively to shocks in modern payment technology transactions during the period under investigation. Secondly, via variance decomposition (VD) analysis, the study finds that a substantial proportion of the variation in money demanded primarily for liquidity services is attributable to modern payment technology transactions as well as other conventional money demand determinants in the short-term horizon (4 quarters) and the long-term horizon (20 quarters). In conclusion, based on the fact that money demanded primarily for liquidity services responds positively and nonnegligibly to modern payment technology transactions, we recommend that modern payment technology patronage should be promoted by Nigeria’s monetary authority in order to extend liquidity services to more Nigerians.

Keywords: money demand, liquidity, modern payment technologies, impulse response function analysis, variance decomposition analysis.

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