Monetary Policy and Domestic Private Investment in Nigeria

Abstract

This paper empirically examined the effect of monetary policy on domestic private investment in Nigeria from 1981 to 2018. In other to achieve our objectives, annual time series data of the dependent variable – domestic private investment (DPI) and independent variables – money supply (MS), government domestic debt (GDD), government domestic savings (GDS), interest rate (INT) and consumer price index (CPI) were collected from secondary sources like CBN Statistical Bulletin and WDI. Thereafter, the data were analyzed using descriptive statistics and the econometrics technique of Vector Error Correction Mechanism (ECM) method of analysis. The results of analysis indicated that a long run relationship exists among the variables. Furthermore, the paper revealed that money supply (MS), government domestic savings (GDS). interest rate (INT) and consumer price index (CPI) have a negative and insignificant effect on domestic private investment in the long run but interest rate is significant at 5%, while government domestic debt (GDD), has a positive and insignificant effect on domestic private investment (DPI) in the long run in Nigeria within the period. Based on the above findings, the paper recommends as follows: Expansionary monetary policy should be formulated that will reduce interest rate, encourage borrowings and savings. This will expand commercial banks and other credit granting financial institutions which will encourage real investment in the economy.