Monetary Policy and Economic Growth in Nigeria

What is it about?

The paper examined the impact of monetary policy on economic growth in Nigeria by developing a model that is able to investigate how monetary policy of the government has affected economic growth through the use of multi-variable regression analysis. We proxied the variables of monetary policy instruments to include: Money Supply (MS), Exchange Rate (ER), Interest Rate (IR), and Liquidity Ratio (LR). Economic growth was represented by Gross Domestic Product (income) at constant prices. Unit root test was conducted and all our estimating variables were stationary at first difference except the component of interest rate which shows that our model interpretation would not be spurious and a true representation of the relationships that exists between the explained and explanatory variables. Error Correction Model was introduced in our estimation in order to have a parsimonious model. From our result, two variables (money supply and exchange rate) had a positive but fairly insignificant impact on economic growth. Measures of interest rate and liquidity ratio on the other hand, had a negative but highly significant impact on economic growth which supports the assertion by Busari et al. (2002) that monetary policies are better suited when they are used in targeting inflation rather than in stimulating growth

Featured Image

Why is it important?

Engle-Granger co-integration test was done and showed the existence of a long run relationship between monetary policy and economic growth in Nigeria. Finally, granger causality test was done on our variables and the results showed the existence of a uni-directional causality between money supply and economic growth. The result shows the importance of monetary policy in the management of Nigeria Economy

Perspectives