Abstract
The study assessed the impact of monetary policy on economic growth in Nigeria. Three objectives guided the study. It employed quarterly data spanning 1986:Q1-2018:Q4, and used the Autoregressive Distributed Lag (ARDL) model, and the Granger causality test to carry out its empirical analysis and achieving its objectives. Findings from the study revealed that the monetary policy rate (MPR) had a positive impact on economic growth, but it was however not statistically significant. The broad money supply (M 2 ) as a monetary policy instrument had a much more positive and highly statistically significant impact on economic growth in Nigeria. As such, the study recommended that the CBN should embark on a comprehensive monitoring of monetary instruments and aggregates and place less emphasis on inflation targeting (IT) alone. It is important to use other instruments which the central bank can control effectively like the broad money supply (M 2 ) as it is more effective on the economy. Keywords: Monetary policy, Economic growth, Monetary Policy Rate, Broad Money Supply, New Consensus Macroeconomic.
Highlights
A sustainably high growth rate of output and a low inflation rate are the two main goals of a majority of macroeconomic policies
Some of the policy instruments used in monetary policy operation in the country are the Monetary Policy Rate (MPR), and other intervention instruments such as the Open Market Operations (OMO), Discount Window Operations, Cash Reserve Ratio (CRR) and the Foreign Exchange Net Open Position (NOP) limit
Findings of this study showed that the interest rate, and investment have insignificant positive effect on economic growth in Nigeria
Summary
A sustainably high growth rate of output and a low inflation rate are the two main goals of a majority of macroeconomic policies. Monetary policy plays an important role in developing economies by increasing the growth rate of the economy by influencing the cost and availability of credit, by controlling inflation and maintaining equilibrium in the balance of payments (Chand, 2018). The principal objectives of monetary policy are to control credit for controlling inflation and to stabilize the price level, to stabilize the exchange rate, to achieve equilibrium in the balance of payments, and to promote economic development. According to the CBN (2018), over the years, the objectives of monetary policy in Nigeria have remained the attainment of internal and external balance of payments. There have been two major phases in the pursuit of monetary policy, namely, before and after 1986; the first phase placed emphasis on direct monetary controls, while the second relies on market mechanisms. Some of the policy instruments used in monetary policy operation in the country are the Monetary Policy Rate (MPR), and other intervention instruments such as the Open Market Operations (OMO), Discount Window Operations, Cash Reserve Ratio (CRR) and the Foreign Exchange Net Open Position (NOP) limit
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