Effect of Financial Prices on CBN Policy Decisions 2000-2018

Abstract

This study investigated the effect of financial prices on CBN policy decisions between 2000 to 2018 by measuring the relationship between bond price level in Nigeria and CBN monetary decision policies (Monetary Policy Rate, Cash Reserve Ratio & Liquidity Ratio). In order to achieve this set objective, the study applied the methodology of Simple Linear Regression. The summary statistics shows that the probability value of the Jarque-Bera test statistics is greater than the critical value, implying that the data for the study is normally distributed The results of the empirical estimates revealed that bond price has a positive effect on monetary policy rate and the effect and the effect is statistically significant (p<0.05). This means that a unit increase in Bond Price will lead to increase in MPR by a margin of 68%. The result of the Simple Linear regression analysis shows that bond price has a positive effect on Cash Reserve Ratio (CRR) and the effect is not statistically significant (p>0.05). This means that a unit increase in Bond Price will lead to increase in MPR by a margin of 34.00%. The result of the Simple Linear regression analysis shows that bond price has a positive effect on monetary policy rate and the effect and the effect is statistically significant (p<0.05). On this basis, it is recommended that policy reforms, which would help reduce the influence of the informal financial sector, be implemented. This would enhance the influence of the central monetary authority in the financial sector, and by implication, reduce the fluctuation of bond price which is affected by the several stochastic factors operating in the economy.