Monetary Policy and Money Supply in Nigeria: A Comparative Analysis: 1993-2018

Abstract

The study researched on a comparative analysis of the impact of monetary policy on money stock in Nigeria. Monthly data were sourced from the CBN online database between 1993M1 and 2018M10. Monetary policy rate (MR), cash reserve ratio (CR) and liquidity ratio (LR) represented the main monetary policy instruments that were made the explanatory variables while broad money supply (M2) stood as dependent variable. ADF and PP tests were carried out to make the data stationary and then VAR and ECM were employed for analysis. Standardised coefficient through the ARDL was also used for proper comparison. Finding of the study revealed that, in the short run, all the variables had the correct negative signs but only the CR was significant, while in the long run, all variables were correctly signed and significant except for CR. Also, monetary policy had a high speed of adjusting the money stock back to equilibrium. The result also unveiled that, LR had the greatest impact in regulating money stock, followed by CR and the MR. However, MR had the highest ability to forecast money stock, followed by LR and then CR, and the abilities were felt even up to the eight month. The study, therefore recommends that the monetary authority should give most attention to LR in regulating money stock in Nigeria and mostly consider MR in forecasting the stock of money. JEL Codes: E52, E58 DOI : 10.7176/PPAR/9-3-12 Publication date :March 31 st 2019