Domestic Debt and Liquidity in Nigeria
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This study empirically appraised the association between domestic debt and liquidity in Nigeria, with the use of quarterly data from 2006 to 2015. The work utilized Federal Government of Nigeria Bonds, Nigeria Treasury Bills and Nigeria Treasury Bonds as proxies for domestic debt; and Liquidity proxied by Broad Money Supply (M2). In order to analyze relevant data, descriptive and econometric tools that include mean, Ordinary Least Square, Unit root test, Johansen Cointegration, Granger causality test and diagnostic tests were applied. Empirical outcomes indicate that there exists a significant positive short run relationship between Federal Government of Nigeria Bonds and Liquidity. Also, the Nigeria Treasury Bills and Nigeria Treasury Bonds show a short run negative albeit, insignificant relationship with liquidity respectively. While in the long run, all endogenous variables exhibit a significant relationship with the exogenous variable. The principal implication of this research is that short and medium term debt instruments impede liquidity in Nigeria. Consequently, it is recommended that treasury bills issuance should be confined to monetary policy attainment rather than a deficit financing avenue, treasury bonds should be gradually phased out, other long term financing options should be explored; among others.
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