Nexus of Monetary Policy and Per Capita Income in the Nigerian Economy: is the development sustainable (original) (raw)

IMPACT OF MONETARY POLICY ON ECONOMIC DEVELOPMENT IN NIGERIA (1980 - 2018)

International Journal of Research, Innovations and Sustainable Development, 2021

Economic growth and development is essential in an economy as it is expected to lead to reduction in the level of poverty, help narrow the inequality gap in the society, create employment as well as improving livelihoods. The need to investigate how well the government through the monetary authority has used appropriate monetary policy to speed-up the economic development process cannot be overemphasized. This study therefore investigated the impact of monetary policy on economic development in Nigeria. The specific objectives of the study were to: (i) assess the trend in monetary policy, economic growth, poverty and unemployment in Nigeria; (ii) assess the impact of monetary policy on economic growth; (iii) investigate the impact of monetary policy on poverty; and (iv) examine the impact of monetary policy on unemployment in Nigeria. Six (6) regression models were built and estimated in the study. The findings of the study were: (i) money supply, economic growth at lag (1), capital, labour and exchange rate have had positive impact on economic growth in Nigeria; (ii) money supply, poverty at lag (1), economic growth at lag (1), exchange rate, interest rate and inflation rate have had positive impact on poverty in Nigeria; (iii) money supply and interest rate have had negative impact on unemployment in Nigeria. It was therefore recommended that: (i) the monetary authority should continue to use appropriate monetary policy to speed up the economic growth process in Nigeria; (ii) the federal government should put appropriate income policy in place to distribute the gains of economic growth equitably among the people; (iii) the monetary authority should deliberately target reduction in unemployment in its monetary policy making process.

The nexus between monetary policy and economic growth in Nigeria: a causality test

Public and Municipal Finance, 2014

Monetary policy is an economic strategy taken by the government normally through the apex bank of a nation – Central Bank to influence the economy. It is geared towards creating stability in the economy and fostering economic growth which have been the quest of every nation. Monetary policy refers to government action or fiat created specifically to control the circulation and direction of money in the economy at any point in time. It can also be referred to as the regulation of money supply and interest rates by a nation’s monetary authority so as to avoid currency depreciation and ensure inflationary pressure is not at an economy-threatening level. This study thus evaluates the nexus (link) between the Nigerian economic growth and monetary policy from 1981 to 2012. It measures economic growth using gross domestic product and the indices of monetary policy that include: cash reserve ratio, monetary policy rate, exchange rate, money supply, and interest rate. The co-integration test result shows that the variables are cointegrated with one other and the test for causality indicates that monetary policy has a noticeable influence on the growth of the economy, while economic growth does not influence monetary policy equally significantly. This suggests that the monetary policy transmission mechanisms contribute positively to the productivity of the Nigerian economy – thus enhancing economic growth.

Monetary Policy and People’s Socio-Economic Welfare in Nigeria

International journal of research and scientific innovation, 2023

This study examined the effect of monetary policy on the socioeconomic welfare of Nigerians between1980 and 2021 from three perspectives: income, health and education. We assessed the short and long run effects of six monetary policy variables (lending rate, savings deposit rate, liquidity ratio, monetary policy rate, loan deposit ratio and private sector credit to gross domestic product ratio) and inflation (control variable on three different socioeconomic welfare variables (gross domestic product per capita, child mortality rate and primary and secondary school enrolment) during the study period.Results of the autoregressive distributed lag (ARDL) technique show thatrevealed interest rate, liquidity rate and private sector credit have negative and significant effect on the per capita income while savings deposit rate, monetary policy rate, loan deposit rate and inflationhvesa positive and significant on per capita income. In the long run liquidity ratio and monetary policy rate have significant positive effect on income per capita while the ratio of private sector credit to GDP has a significant negative effect on it. Inflation has a positive but insignificant effect on per capita income. Furthermore, in the short run, all the selected monetary policy variables have significant effects on child mortality rate. While the effect of interest rate, liquidity ratio and monetary policy rate is negative, that of savings deposit rate, loan deposit ratio, private sector credit and inflation is positive. On the long run, interest rate, private sector credit and inflation have positive effect on child mortality but whereas the effect of interest rate is insignificant, the other two have significant effect. Regarding number of school enrolment, in the short run, interest rate has a negatively significant effect while liquidity ratio, loan deposit ratio and inflation have direct positive effect on it. Savings deposit rate has an insignificant positive effect on it while private sector credit has a negative insignificant effect on it. On the long run, interest rate, private sector credit and inflation have an insignificant positive effect on the number of primary and secondary school enrolment. Savings deposit rate, monetary policy rate and loan deposit ratio have insignificant negative effect on it. The effect of liquidity ratio is significantly positive. The study concluded that monetary policy has significant effect the socioeconomic welfare life of Nigerians both in the short and long run. The study recommends the sustenance of the existing liquidity ratio and monetary policy rate due to their favourable effects on the people's welfare.

Determinants of Financial Savings in Nigeria: An Empirical Analysis of Monetary Policy Stability

Developing Country Studies, 2015

This paper critically investigate the key determinants of financials and implications of monetary policy instruments on its variability in Nigeria between 1980 and 2008 dynamic long-run econometric model. The empirical results from the Engle Granger Cointegration test show a negative influence of GDP growth per capital income (PCY), board money supply (M2), and debt service ratio (DSR) and positive influence of real interest rate (RIR), interest rate spread (SLS) and domestic inflation rate in the long-run. The Augmented Dickey Fuller (ADF) unit root test result also revealed that most of the time series incorporated in this study are not stationary at level. The paper therefore submits that effort should be geared towards improving per capita income by reducing the unemployment rate in the country in a bid to accelerate growth through savings. There should also be an intensified effort to stabilize debt service ratio at moderate levels so as to ameliorate its negative impact on fin...

Monetary Policy and Economic Growth of Nigeria ( 1981 - 2012 )

Journal of Policy and Development Studies

This study examined the impact of monetary policy on the growth of Nigeria economy between the period of 1981 and 2012 with the objective of finding out the impact of various monetary policy instruments (money supply, interest rate, exchange rate and liquidity ratio) in enhancing economic growth of the country within the period considered. To identify the stationarity characteristics of the data employed in the empirical investigation, various advanced econometric techniques like Augmented Dickey Fuller Unit Root Test, Johansen Cointegration Test and Vector Error Correction Mechanism (VECM) were employed and the following information surfaced: None of the variables was stationary at level meaning they all have unit roots. But all the variables became stationary after first difference with the exclusion of money supply. However, all the variables became stationary after second difference. Hence they were integrated of order two. The cointegration result indicated that there is long run relationship among the variable with two cointegrating vectors. The result of the vector error correction mechanism (VECM) test indicates that only exchange rate exerted significant impact on economic growth in Nigeria while other variables did not. Equally, only money supply though statistically insignificant possessed the expected sign while others contradicted expectation. The study concluded that monetary policy did not impact significantly on economic growth of Nigeria within the period under review and that the inability of monetary policies to effectively maximize its policy objective most times is as a result of the shortcomings of the policy instruments used in Nigeria as such limits its contribution to growth. The study recommended among others that Commercial banks and other financial intermediaries must be forced to ensure compliance with the stipulated prudential guidelines.

REINVESTIGATING IN TO THE NEXUS BETWEEN MONETARY POLICY AND ECONOMIC GROWTH IN NIGERIA

SSRN Electronic Journal, 2022

Monetary policy has been driving force of economic prosperity in any economy of the world. However, in Nigeria, various empirical studies have found both positive and negative impact of monetary policy on economic growth. Thus this study is carried out to reinvestigate the nexus between monetary policy and economy growth in Nigeria from 1970 to 2020. Economic growth was proxy with Gross Domestic Product per capita (GDP), and Monetary Policy Rate (MPR), Real Interest Rate (RNT), broad Money supply (M2), Exchange Rate (EXR) as independent variables representing monetary policy, while Inflation Rate (INF) was introduced as control variable for this study. The study adopted Auto Regressive Diagnostic Lag and unit root test, cointegration test, granger causality test and VECM was conducted in this study. It was found that all variables were stationary and there is long term relationship between economic growth and monetary policy with high speed of adjustment between the long and short run fluctuation. The major findings show that broad money supply, real interest rate and monetary policy rate are positively significant except for monetary policy rate which is negative. Inflation rate and exchange rate were negatively significant with economic growth. Therefore, it was concluded that monetary policy has positive impact on Nigerian economy over the years in this study. The study recommends that the monetary authorities should pay attentions to broad money supply (M2), real interest rate and monetary policy rate because they are capable of influencing economic activities positively which leads to economic growth, among others.

MONETARY POLICY TRANSMISSION MECHANISMS AND ECONOMIC DEVELOPMENT IN NIGERIA

PhD Thesis for Banking and Finance, 2020

ABSTRACT This study examined monetary policy transmission mechanisms and economic development in Nigeria (1960 to 2018) with a view to assessing its effectiveness in achieving specific macroeconomic objectives such as employment, the balance of payment equilibrium, relatively stable general price level etc. The aims of the study were to determine the influence of monetary policy transmission mechanisms on the economic development in Nigeria. This study became necessary at this time when Nigeria is facing major macroeconomic problems such as low employment, price instability, high inflation etc. The monetary policy transmission mechanisms (independent variables) were monetary policy rate, capital stock, money supply, interest rate spread, credit to private sector, remittances inflows, real exchange rate and inflation rate while the economic development (dependent variable) is gross domestic product per capital growth. Time series data from 1960 to 2018 were sourced from World Bank economic Indicators and Central Bank of Nigeria Statistical Bulletin using a purposive sampling technique. The study adopted a combination of ex-post facto research design, longitudinal research design, descriptive research design, causal-effect research design and correlation research design while statistical analysis used include Augmented Dickey Fuller (ADF) unit root test, granger causality test, the ordinary least square multivariate regression method, the generalized method of moment, the Johansen co-integration and the vector error correction mechanisms methods. Findings from this study indicate that capital stock, with a coefficient of (0.13), money supply (0.17), Migrant remittances inflows (6.5) and exchange rate (0.08) showed significant and positive long run relationship with the Nigerian economic development in the period observed while monetary policy rate (0.10) and credit to private sector (0.30) exerted positive but insignificant impacts on economic development in Nigeria. Interest rate (-0.71) is negatively related but significant while inflation rate (-0.03) is negative and insignificantly related to economic development in Nigeria. This study concludes that monetary policy transmission mechanisms have both short and long run relationships with economic development in Nigeria. Therefore, monetary policy transmission mechanisms implementations were effective tools for economic development in Nigeria. It is therefore recommended that both the Ministry of Finance and Central Bank of Nigeria (regulatory authorities) should regularly ensure optimal mix of monetary policy instruments in order to significantly influence economic activities, stimulate investments and consequently improves macro-economic stability in Nigeria. The regulatory authorities in Nigeria should frequently review the monetary policy rate and credit available to investors to ensure favourable investment and business climate in Nigeria. These regulatory authorities should put up effective policies to boost remittances inflows into Nigeria and influencing investments rather than consumption that may be inflation inducing. The findings of this study enriched literature on economic development and monetary policy transmission mechanisms. The dynamic estimation technique in the likeness of Generalized Method of Moment robustly assessed the endogeneity between monetary policy variables and economic development in Nigeria. Keywords: Gross Domestic Product per Capita, Interest rate, Monetary Policy, Monetary Policy Rate, Variables of interest. .

Monetary Policy and Economic Growth in Developing Countries: Evaluating the Policy Nexus in Nigeria

While there are numerous studies on the relationship between monetary policy and economic growth, evaluating the policy nexus between the two phenomena remain inconclusive. Undeniably, monetary policy is believe to influence the employment level, price stability, growth of aggregate output and equilibrium in the balance of payment-for the case of developing economies. But the magnitude of its influence largely depends on how it is conducted through various channels and the independency of the apex bank to select the appropriate instruments for formulating the monetary policy. In lieu of that, this study examines the relationship between monetary policy and economic growth in Nigeria using time series data covering the period of 1980 to 2017. The study employs the Cointegration test and the Ordinary Least Square (OLS) technique with the view to estimating the model coefficients and showcase the policy nexus between the variables. Result indicates the existence of long-run relationship between monetary policy indicators and economic growth. Further empirical findings show that money supply has positive effect, while both exchange rate and interest rate have negative effect on the real GDP. As such, monetary authorities in Nigeria should adequately managed and monitored the growth level of money supply in order to realise the desired growth level. Given the socioeconomic and political conditions in Nigeria, there is growing needs to formulate appropriate monetary measures which might encourage borrowing through sound and productive interest rate as well as stable exchange rate.

A REASSESSMENT OF THE IMPACT OF MONETARY POLICY ON ECONOMIC GROWTH: STUDY OF NIGERIA

Nigeria has over the years been controlling her economy through various macroeconomic policies of which monetary policy is among using some monetary policy instruments in efforts to drive along the desired path. This study empirically reassessed the impact of monetary policy on economic growth of Nigeria adopting the Error Correction Model approach. It utilized time series secondary data spanning between 1982 and 2013. The result showed that a unit increase in Cash Reserve Ratio (CRR) led to approximately seven units increase in economic growth in Nigeria. The result was in consonance with economic literature as monetary policy among other objectives is geared towards achieving the macroeconomic objectives of sustained economic growth and price stability. Therefore, the study recommends that monetary authorities should give priority attention to CRR monetary policy tool as it will produce a more desired result in terms of economic stabilization. And also some combination of fiscal policy measures are needed to attain the complementary balance required to drive an economy towards to desired goals.

Analysis of the Effects of Monetary Policy on Economic Growth in Nigeria (1980-2018)

2021

This study empirically investigates the effectiveness of monetary policy with the aim of examining the effects of money supply and exchange rate on economic growth in Nigeria. The study utilises annual time series data on four germane variables; Gross Domestic Product, broad money supply, exchange rate and foreign reserve from 1980 to 2018. To obtain a robust and reliable results from the data employed in the empirical investigation, various economic techniques like Augmented Dickey Fuller Unit Root Test, Johansen Cointegration Test and Vector Error Correction Model (VECM) were employed and the following information surfaced: None of the variables was stationary at level meaning they all have unit roots. But all the variables became stationary after first difference. The study found that except exchange rate, all the other monetary instruments reflect direct impacts on economic growth in the long run. Broad money supply has positive and significant impact on economic growth in the l...