The Effect of Central Bank of Nigeria ( CBN ) Money Supply Management on Commercial Bank Loans and Advances ( CBLA ) and Output

Abstract

Monetary policy is one of the macroeconomic instruments with which monetary authority in a country employs in the management of money supply and the economy thereof to attain the fundamental objectives of price stability and maintenance of balance of payment. The monetary policy strives to explain the correlation between macro economic variables and the monetary variable and this form the focal point of this study. The study also set out to ascertain the impact of CBN money supply on the growth of Nigeria economy, ascertain the extent of correlation that exists between money supply and output. Scholars in the field opined that contractionary monetary policy negatively influences total consumption, CBLA and output. Within this framework, money supply, CLBA and output variables are analyzed for the period of 18 years (1994-2012) using Statistical package for social sciences (SPSS) tool. The findings shows that change in money supply (M2) has significant effect on variables such as CBLA and output in Nigerian economy within the period under review, Also there is a significant strong multiple correlation among Real GDP, Money supply and Commercial Banks' loans and Advances (R= 95.1%). The coefficient of Determination (R2) reveals that 90.5% of variations in RGDP were explained by our selected explanatory variables (Money supply and Commercial Banks' loans and Advances).