Monetary Policy Variables Relevance on Balance of Payments Adjustment in Nigeria 1980-2020

Abstract

This study examines monetary policy relevance on the Nigerian balance of payments adjustment, form 1980-2020. Objectives are; to examine the relevance of monetary policy variables such as Exchange rate, Inflation rate, Balance of trade, Real Gross Domestic Product and Domestic Credit on the Nigerian balance of payments adjustment. Evaluate the significant speed of adjustment of monetary policy variables such as Exchange rate, Inflation rate, Balance of trade, Real Gross Domestic Product and Domestic Credit on the balance of payments adjustment within the period under study. The study employed the following advanced econometric techniques; Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) tests, chow test, ECM model OLS model, statistical tests & Co-integration test. Based on the above econometric techniques conducted, it was observed that group unit root test result shows that variables used in the study became stationary after the first differenced at degree of order one I(I). There is Co-integration (long run relations) among variables used in the study. Our results indicated rejection of the two null hypotheses of this study and acceptation of the alternative three hypotheses that said; Nigerian monetary policy variables such as Exchange rate, Inflation rate, Balance of trade and Domestic Credit have significant relevance on the Nigerian balance of payments adjustment. Nigerian monetary policy variables used have significantly three years to adjust balance of payments adjustment in the Nigerian economy within the period of the study. The researcher recommends that; the need to manage domestic liquidity wisely in view of the tremendous pressure on the balance of payments of excess money. A determined effort to mobilize resources through private saving and the implementation of a prudent fiscal policy through efficient collection of tax revenues, rationalization of government expenditure towards growth enhancing and poverty reduction programmes will also enable the government to pursue its development programs without having to rely on the monetization of its budget deficit. Overall concentration on monetary tools solely should be reduced and employ other policy instruments to correct the balance of payment fluctuation. The government should also be cautious of budget deficit that are often time financed by internal borrowings.