Abstract
There has been an increasing trend in the unemployment rate despite the growth rate witnessed. Monetary policy is presumed as one of the ways to improve the situation. Likewise, the relationship between monetary policy and employment has generated controversial debates in the literature. Though its connection has been extensively studied, however, the implications of monetary policy in respect to time frame perspectives on employment and output have not been widely addressed in the literature. This study provides evidence on shock effects, long and short-run impacts of monetary policy transmission through the credit channels on output and employment in Nigeria within the period of 1981 to 2016 using the Structural Vector Autoregression and Autoregressive distributed lags (ARDL). Evidence from the forecast error shock showed that variations in monetary policy indicators affect output more than employment in the first two periods; however, it affects employment more afterwards. The ARDL results show no evidence of co-integration when output is used as the dependent variable; conversely, cointegration exists when employment is used as the dependent variable. The monetary policy indicators: money supply, bank deposit liability and interest rate are statistically and economically significant with employment in the long run. In the short run, money supply and interest rate are economically and statistically significant. The findings revealed that the Nigerian government can maximize the long-run benefits of monetary policy through the credit channels on employment. Hence, there is a need for policymakers to look beyond short-run gain and promote long-run employment via monetary policy among others.
Highlights
For some decades, Nigeria had been witnessing an increase in economic growth, even though there was a reduction in the second quarter of 2016 due to the recession experienced at the period
This study provides evidence on shock effects, long and short-run impacts of monetary policy transmission through the credit channels on output and employment in Nigeria within the period of 1981 to 2016 using the Structural Vector Autoregression and Autoregressive distributed lags (ARDL)
The ARDL results show no evidence of cointegration when output is used as the dependent variable; cointegration exists when employment is used as the dependent variable
Summary
Nigeria had been witnessing an increase in economic growth, even though there was a reduction in the second quarter of 2016 due to the recession experienced at the period. Equation (2) indicates that the quantity of money gates the shock effects of credit channels through supply is directly related to the nominal value of monetary policy on employment and output. A positive relationship between monetary policy indicators (money supply (M2) and bank deposit (BDL)) and output/employment is expected, while negative with interest rate. Based on the outcome of these (EXC), broad money supply (M2), bank depos- results, the most appropriate technique to use to it (BDL) and gross fixed capital formation (GFC) examine the short- and long-run relationship is that are obtained from CBN, while total employ- the Autoregressive distributed lags (ARDL).
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