Monetary Policy and Economic Growth in Nigeria: 1986 - 2019

Abstract

The study examined the impact of monetary policy on economic growth in Nigeria. The research adopted the causal research design. Time series data sourced from the Central Bank of Nigeria Statistical Bulletin from 1986 to 2019 was used to determine the impact of monetary policy on economic growth in Nigeria. Economic growth was proxied by Gross Domestic Product while monetary policy was proxied by money supply, exchange rate, interest rate and inflation. Trend analysis was employed in the analysis and the hypothesis was tested at 5% level of significance. To get a more robust estimate of the effects of the independent variables on the dependent variable, the log of the variables were taken. The unit root test result showed that the log of GDP, INTR and were stationary at level while the log of MS and EXCHR were stationary at first difference. Consequently, we applied the ARDL model in the analysis. The result showed that money supply and exchange rate had negative and non significant impact on economic growth of Nigeria. However, the study revealed that the one period lag of exchange rate, as well as interest rate and inflation had positive and significant impact on economic growth. Monetary policy was found to be linked to economic growth and can be used to successfully manage the Nigerian economy, making it a valuable tool for price stability and increased output. Nevertheless, monetary policy implementation in developing countries, such as Nigeria has extra problems not faced by industrialized countries, with much fiscal dominance and currency substitution. As a result of these shortcomings, the study recommends that, the monetary policy authorities should effectively maximize their policy objectives for the country to get maximum benefit from monetary policies.