Abstract
This work investigates the monetary policy transmission mechanisms and their efficacy in predicting economic growth in Nigeria using the ARDL methodology. Variables included in the model were growth rate of real domestic gross product (RGDP), M2 broad money supply definition, cash reserve ratio (CRR), nominal exchange rate (EXCR); inflation rate (INFL), interest rate and deposit money banks credit to the private sector (BCR). The unit root test using the ADF test revealed that all our variables were integrated at levels I (0). The study proceeded to estimate the ARDL bounds tests; the ARDL long run estimations; the diagnostic tests, normality and stability tests respectively. The critical findings from our result and analysis revealed that broad money supply (M2), exchange rate (EXCR), cash reserve ratio (CRR) and the rate of inflation (INFL) were the major monetary policy transmission mechanism predicting the level of economic growth in Nigeria. Likewise, the study identified interest rate (INTR) and deposit money banks credit to the private sector (BCR) as weak transmission variables driving economic growth and prices in Nigeria. The study concludes that the monetary policy transmission mechanisms have had a mixed bag in predicting economic growth in Nigeria. This conclusion was arrived based on the fact that the findings suggest that the negative impacts outweigh the positives, especially, as the critical variables like interest rate, credit to the private sectors and exchange rate depreciation plays a key role in driving economic growth. The monetary authority should be religious in seeing through monetary policies, especially, in maintaining consistency. Devaluation or depreciation of the naira also is not pro-growth in Nigeria and should be jettisoned, pending the diversification of our economy and improvements in our domestic productive capacities. Evidently, access to private sector credit at a lower interest should be pursued vigorously. Keywords: monetary policy, transmission mechanism, economic growth and devaluation DOI : 10.7176/RJFA/10-18-06 Publication date :September 30 th 2019
Highlights
The broad objectives that drives monetary authorities in promulgating policies are encapsulated in achieving some macroeconomic desirables such as; economic growth, relative price stability and exchange rate stability among others
Methods of Study In order to achieve the objectives of this study, the variables included in this study were; real gross domestic product (RGDP), broad money supply (MS2), and cash reserve ratio (CRR), exchange rate of the US dollar to the Naira (EXR), inflation rate (INF), and interest rate (INT) and banking sector credit to the private sector (BCR)
The critical findings from our result and analysis reveal that broad money supply (M2), exchange rate (EXCR), cash reserve ratio (CRR) and the rate of inflation (INFL) were the major monetary policy transmission mechanism predicting the level of economic growth in Nigeria
Summary
The broad objectives that drives monetary authorities in promulgating policies are encapsulated in achieving some macroeconomic desirables such as; economic growth, relative price stability and exchange rate stability among others. Scholars, policy makers and monetary authorities alike differ as the best monetary policy transmission mechanism to achieve the set goals This is so because empirical evidences have shown that the instruments of monetary policy have differing efficacies both in the short and long terms. Borrowing from the above it is evident that changes in monetary policy, subject to the transmission channels used, tend to influence aggregate demand, growth, exchange rate and inflation, stimulates employment in the process. This is in line with the statutory role of the Central Bank of Nigeria (CBN) as contained in the CBN act of 1959 as amended in several Decrees and consolidated in Decree 24 and 25 of 1991. Whereas there exists consensus on these broad objectives, there are discordance in terms of instruments or channels of achieving these objectives (Nwaeze and Onyekwere, 2018)
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