Abstract
This study examines the effects of monetary policy on sectoral output growth in Nigeria over the period 1986:1 to 2008:4. The study utilized an Autoregressive Distributed lag (ARDL) model and the findings showed that manufacturing sector is not sensitive to any of the monetary policy variables. In sharp contrast with manufacturing sector, agricultural sector is responsive to changes in interest rate only while service and wholesale/retail economic activities are responsive to exchange rate. Furthermore, interest rate and exchange rate are the major determinants of mining output growth while building/construction sector is more responsive to changes in exchange rate and bank credit. In general exchange rate is the most important and influential monetary policy measure in Nigeria. The study concludes that monetary policy will be more effective if the inherent differences in these sectors are factor in the design of policies in Nigeria.
Highlights
In the literature, macroeconomists have established the theoretical relationship between real output and monetary policy measures
Before estimating Autoregressive Distributed lag (ARDL) model, this study tested for the presence of unit roots and co-integration among the variables, following standard econometric procedure
This study examined the effects of monetary policy on sectoral output growth in Nigeria and the findings of the study showed that, to a considerable extent, different policy variables influenced the output of the sectors differently, while sector like the manufacturing was non responsive to all the explanatory variables in the model
Summary
Macroeconomists have established the theoretical relationship between real output and monetary policy measures. In contrast to Keynesian policy prescription, McKinnon (1973) and Shaw (1973) in advocating the financial liberalization hypothesis argued that a market force induced higher interest rate, would enhance more investment by channelling saving to productive investment and stimulate real output growth. Based on these theoretical propositions, empirical questions have been raised on whether this consensus views on the effect of monetary policy on the real output holds for the different sectors of the economy. The possibility of a differential response between sectoral output and aggregate output to monetary policy measures has been investigated by Granley and Salmon (1997) for other countries
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