Monetary policy and unemployment rate in Nigeria: An empirical investigation

Abstract

The study investigated the impact of monetary policy on unemployment rate in Nigeria. Time series data spanning from 1981 to 2020 was sourced from the Central Bank of Nigeria statistical bulletin and national bureau of statistics (various editions). The ARDL bounds testing approach to co-integration was used to analyse the data. Autoregressive Distributed Lag (ARDL) model and Error Correction Model (ECM) were utilized to address the main objectives of the study. The estimated short run coefficient result revealed that prime lending rate has a positive and insignificant impact on unemployment rate while that minimum rediscount rate has a negative and insignificant impact on unemployment rate. The speed of adjustment for correcting disequilibrium from the previous year to equilibrium in current year is 81.9 percent as shown by the coefficient of ECM. The long run result of the study showed that there is a positive and significant impact between prime lending rate and unemployment rate in Nigeria but a negative and significant impact between minimum rediscount rate and unemployment rate in Nigeria. The run result equally revealed that there is a positive and insignificant impact between exchange rate and unemployment rate in Nigeria. Based on these findings, the study recommended that the monetary authority should come up with policies that will reduce minimum rediscount rate as this will encourage borrowing of funds for investment purposes as this will help to reduce unemployment rate. Monetary authorities should also come up with policies that will stabilize exchange rate.