Monetary Approach to Nigerian Balance of Payments

Abstract

The study examined monetary approach to Nigerian balance of payments. Therefore, the broad objective of the study was to examine the impact of monetary policy on balance of payments in Nigeria from 1970 to 2015. The econometrics methods of Co-integration and Error Correction Mechanism were employed as the analytical techniques. The Co-integration result revealed the existence of a long-run relationship among the variables. The result of the parsimonious ECM revealed that exchange rate and credit to private sector have significant impact on balance of payments in Nigeria. While money supply and interest rate do not have significant impact on balance of payments in Nigeria. Moreover, the coefficient of ECM was rightly signed (that is negative) and statistically significant at conventional level. This means that, the short run dynamics adjust to long run equilibrium relationship. Based on these findings, the study recommended that monetary authority should make the financial sector to be viable in order to provide credit at lower interest rates and adopt a managed floating exchange rate policy to redress the problem of exchange rate variation in order to raise the BOPs position of Nigeria.