Monetary Policy Variables Research Articles

Monetary Policy and The Financial Performance of Listed Consumer Goods Firms in Nigeria

This study assesses the impact of monetary policy on the financial performance of the listed consumer goods firms in Nigeria. The study uses the purposive sampling technique and elimination method to determine the considered listed consumer goods firms in Nigeria from 2012 to 2023 and analyzed the impact of monetary policy variables of interest rates and inflation rate on the financial performance of these firms, measured by earnings per share as the indicator. Regression analysis was used to analyze the data. The results specifically show that changes in interest rate have a positive significant influence on the financial performance of listed consumer goods firms while changes in inflation rate have no significant influence on the financial performance of listed consumer goods firms. The study recommends the implementation of interest rate policies by the monetary authority that will balance stability and economic growth knowing the positive impact on the financial performance of the consumer goods firms.

Macro-Economic Policy Coordination and Macro-Economic Instability in Pakistan

This study is intended to examine the impact of macroeconomic policies on macroeconomic instability in Pakistan. This study used time series data for the period of 1990 to 2022. To deal with the stationarity of the data ADF and PP tests are used which suggest the use of ARDL. The existence of a long-run relationship is confirmed by the Bound test. The impact of fiscal & monetary policy is found to be significant in the long run. The impact of the fiscal policy variable (GEXP) on macroeconomic instability (MI) negatively means that an increase in GEXP (expansionary fiscal policy) leads to a decrease in MI while the impact of monetary policy variable IR (tight monetary policy) is found positive and significant in the long run means that the impact of tight monetary policy leads to increase MI. Similarly, the impact of expansionary fiscal policy on MI is effective but the monetary policy variable is effective in the short run. The impact of domestic investment is found to be negative and significant means that an increase in domestic investment leads to a decrease in MI. Therefore this study suggests that special attention should be paid to fiscal and monetary policies to deal with MI in Pakistan.

Comparative impact of fiscal and monetary policies on economic growth in Nigeria

This work examined the comparative impact of fiscal policy and monetary policy on economic growth in Nigeria over the period 1981 to 2021 using annual time series data on real gross domestic product, broad money supply, government expenditure, total government revenue, and interest rate (lending rate). The objectives are to determine whether the fiscal policy or the monetary policy impacts more on economic growth in Nigeria and to ascertain the causality relationship between fiscal policy, monetary policy and economic growth in Nigeria over the period. The study employed ARDL Bounds Testing methodology in determining whether long run relationship exists between fiscal policy (proxy government expenditure and total government revenue), monetary policy (proxy broad money supply and interest rate (lending rate) and real gross domestic product. The result indicated that broad money supply representing monetary policy has positive relationship with and statistically significant impact on economic growth in Nigeria over the study period as indicated by its t-statistic and probability values of 6.436365 and 0.0000 respectively. Fiscal policy variable (government expenditure), on the other hand, has negative relationship with economic growth and statistically significant impact on economic growth in Nigeria as indicated by its t-statistic and probability values of -2.427968 and 0.0234 respectively. From the result, a change in money supply (monetary policy) affects economic growth positively while a change in Fiscal policy variable (government expenditure) affects economic growth negatively. Besides, the coefficient of monetary policy (0.457048) is greater than fiscal policy coefficient (-0.300554) and implies that monetary policy impacts more than fiscal policy impacts on economic growth in Nigeria. Therefore monetary policy does impact more than Fiscal policy on economic growth in Nigeria over the period studied. The result further indicated that there is no significant causality relationship between fiscal policy, monetary policy and economic growth in Nigeria over the period covered as indicated by the probability values of both fiscal and monetary policy variables employed and economic growth. The study therefore recommends that policy makers should focus more on monetary policy than fiscal policy so as to enhance economic growth since monetary policy has more concern with economic growth than fiscal policy. Keywords: Economic growth, fiscal policy, monetary policy, ARDL, Bound Test, Causality, Nigeria.

A Co-Integration Approach to Assess the Impact of Nigeria Monetary Policy on Economic Growth

This research examines the impact of Nigeria’s monetary policy on her economic growth by developing a model that is able to investigate how monetary policy of the government has affected economic growth through the adoption of multi-variable regression analysis. GDP representing economic growth which was used as the dependent variable against the explanatory variables which is Monetary Policy Variables: money supply, exchange rate, interest rate, and inflation rate. The time series data is the market-controlled period covering 1960-2020. The study determined the relationship between monetary policy instruments and GDP, and it also determined the adequacy of the model. The study adopted a co-integration approach and also conducted a unit root test. The study showed that monetary policy variables included in the model has combined significant impact on GDP in Nigeria. In addition, the core finding of this study showed that exchange rate and money supply have positive and statistically significant relationship with GDP in Nigeria. However, inflation rate has negative impact on GDP and a non-statistically significant relationship with GDP, interest rate has positive and statistically insignificant relationship with GDP. The results from the study proved that monetary policy have a significant relationship with GDP. In conclusion, based on the outcome of the Study. The study recommended among others that the regulatory authority (CBN) is advised to reduce interest rates and increase money supply such that both loans and funds will be easily accessed by manufacturing/industrial outlets to enhance manufacturing output in the Nigeria economy.

Econometric Analysis of South Africa’s Fiscal and Monetary Policy Effects on Economic Growth from 1980 to 2022

This study examined South Africa’s economic growth rate from 1980 to 2022 through an econometric analysis of fiscal and monetary policies. The study sought to investigate the relationships between the economy’s growth rate and various fiscal and monetary policy variables, taking into account different economic approaches such as Keynesian, monetarist, and Wagner’s perspectives. The methodology used consisted of data preparation, multiple unit root tests, Autoregressive Distributed Lag (ARDL) cointegration analysis, diagnostic tests, and pairwise Granger causality analysis. The empirical analysis found a long-term cointegration among the economic growth rate, government debt, expenditure, and revenue in fiscal policy, though government debt and expenditure were not statistically significant. Contrary to economic theory, increased government revenue had a negative correlation with economic growth. There was no long-term relationship found between the economic growth rate and monetary policy variables such as the official exchange rate, inflation rate, real interest rates, and M3 money supply. Pairwise Granger causality tests revealed a one-way relationship between government spending and economic growth, providing support to the Keynesian approach to fiscal policy. This study also discovered evidence that economic growth Granger-causes inflation, implying that economic growth may have predictive power for inflation, consistent with the demand-pull inflation hypothesis. However, no direct predictive relationships were found between the selected monetary policy variables and economic growth, supporting the long-run theory of monetary neutrality. This study suggests evaluating spending, managing inflation, implementing reforms, closing infrastructure gaps, encouraging investment, and ensuring fiscal sustainability.

Evaluation of the Impact of Monetary Policy on the Financial Performance of Manufacturing Companies: Implications of Interest Rates, Inflation and Macroeconomic Stability

This study aims to evaluate the impact of monetary policy on the financial performance of manufacturing companies in Indonesia, emphasising the implications of interest rates, inflation, and macroeconomic stability. Using a quantitative approach through multiple regression analysis, this study analyzes the relationship between monetary policy variables of Bank Indonesia's benchmark interest rate, inflation rate, exchange rate, foreign exchange reserves, and budget deficit with the company's financial performance, as measured using Return on Assets (ROA), Return on Equity (ROE), and Net Profit Margin (NPM). Secondary data used in this study include the annual financial reports of manufacturing companies listed on the Indonesia Stock Exchange (IDX) from 2015-2023. The study results indicate that the benchmark interest rate has a significant negative effect on ROA and ROE. In contrast, the inflation rate shows varying impacts on NPM and other financial performance. In addition, macroeconomic stability is measured through indicators of the rupiah exchange rate against the USD, foreign exchange reserves, and budget deficit, which significantly affect the company's financial performance. These findings emphasize the importance of monetary policy and macroeconomic stability in determining the profitability of manufacturing companies in Indonesia. This study implies that corporate management needs to develop more adaptive strategies to deal with fluctuations in monetary policy and macroeconomic conditions. In addition, policymakers need to consider the long-term impact of monetary policy on the manufacturing sector to create an economic environment conducive to industrial growth. This study contributes significantly to the literature on the impact of monetary policy on corporate financial performance in emerging markets.

Understanding the Dynamics Between Monetary Policy and Interest Rate Spreads in Uganda: A Quantitative Study

This study delves into the intricate relationship between monetary policy variables and interest rate spreads in Uganda's financial sector. It examines the impact of the rediscount rate, inflation, money supply, and the Real Effective Exchange Rate on interest rate spreads. Findings indicate that while short-term changes in the rediscount rate have a limited effect on interest rate spreads, higher rates widen spreads in the long term as banks adjust strategically. Initially, inflation narrows spreads, but persistent high inflation widens them over time as banks hedge against inflation risk. Moreover, an increase in money supply reduces spreads in the short run but has diminishing effects over time. Recommendations include transparent adjustments of the rediscount rate, robust inflation targeting frameworks, and vigilant monitoring of the money supply to support economic growth and financial stability. Overall, this study provides insights for policymakers and financial institutions, emphasizing the importance of considering both short-term and long-term effects in monetary policy adjustments for Uganda's economic stability.

Dynamic linkages between the monetary policy variables and stock market in the presence of structural breaks: evidence from India

PurposeThe study aims to determine the long and short-term causal relationships between the variables associated with the adjustment of monetary policy and the stock market in India in the presence of structural breaks.Design/methodology/approachThe study employed the autoregressive distributed lag (ARDL) bounds test and the Error Correction Model to assess long- and short-term causal relationships. The study also used non-frequentist Bayesian inferences for the validity of estimation robustness. The Bai–Perron test is used to identify breakpoint dates for the Indian stock market index, and the Granger Causality test is employed to ascertain the direction of causality.FindingsThe F-bounds test reveals cointegration among the variables throughout the examined period. Specifically, the weighted average call money rate (WACR), inflation (WPI), currency exchange rate (EXE), and broad money supply (M3) exhibit statistical significance with precise signs. Furthermore, the study identifies the negative impact of the COVID-19 outbreak in March 2020 on the Indian stock market.Research limitations/implicationsAlthough the study provides significant insights, it is not exempt from constraints. A significant limitation is selecting a relatively limited time period, specifically from April 2008 to September 2023. The limited time frame of this study may restrict the applicability of the results to more comprehensive economic settings, as dynamics between the monetary policy and the stock market can be influenced by multiple factors over varying time periods. Furthermore, the utilisation of the Weighted Average Call Money Rate (WACR) rather than policy rates such as the Repo rate presents an additional constraint as it may not comprehensively account for the impacts of particular policy initiatives, thereby disregarding essential complexities in the connection between monetary policy variables and financial markets.Practical implicationsThe findings of the study suggest that investors and portfolio managers should consider economic issues while developing long-term investing plans. Reserve Bank of India should exercise prudence to prevent any discretionary measures that may lead to a rise in interest rates since this adversely affects the stock market. To mitigate risk, investors should closely monitor the adjustment of monetary policy variables.Social implicationsThe study has important social implications, especially regarding the lower levels of financial literacy among investors in India. Considering the complex nature of the study’s emphasis on monetary policy adjustments and their impact on the stock market. Investors face the risk of significant losses due to unexpected adjustments in monetary policy. Many individuals may need help understanding how policy changes impact their investments. Therefore, RBI must consider both price and financial stability when formulating monetary policies. Furthermore, market participants should consider the potential impact of fluctuating monetary policy variables when devising their long-term investment strategies. Given that adjustments in interest rates can markedly affect stock market dynamics, investors must carefully assess the implications of monetary policy decisions on their portfolios.Originality/valueThe study uses dummy variables in the ARDL model to represent structural breaks that emerged from the COVID-19 pandemic (as determined by the Bai–Perron multiple breakpoint test). The study also used the Perron unit root test to find out the stationary of the series in the presence of structural breaks. Additionally, the study also employed Bayesian inferences to affirm the robustness of the estimates.

Monetary policy and risk of commercial banks in Vietnam

This study investigates the bank risk-taking channel of monetary policy transmission by comprehensively analyzing multiple bank risk measurements amid monetary policy shocks in Vietnam. Using banking data for 2008–2021, a dynamic panel model is estimated to examine the risk exposure of 30 Vietnamese commercial banks. The paper employs the annual M2 money supply growth as a monetary policy variable, besides two policy interest rates established by the central bank. We find that an expansion of monetary policy benefits the quality of loan portfolios; however, reduced interest rates or an extended money supply increase insolvency risk. We also document that heightened economic growth corresponds to a reduced likelihood of credit and insolvency risks, while a surge in the inflation rate leads to an escalation in insolvency risk, manifested by a decline in the Z-score index. Overall, the findings on different risk dimensions in this paper are expected to draw a comprehensive picture of banks’ risk appetite and behavior in response to monetary changes.

Monetary Policy, Digitalisation and Banking Industry Performance in Nigeria

In the evolving financial landscape of Nigeria, the interplay between monetary policy and digitalization significantly influences the performance metrics of banks. This study explores the multifaceted impact of these two critical factors on the Nigerian banking sector. Monetary policy, orchestrated by the Central Bank of Nigeria, regulates the economy's money supply, affecting banks' lending behaviors and liquidity. Digitalization, on the other hand, offers a transformative potential for banks to enhance operational efficiency, customer experience, and service delivery through technological advancements. The study examines how money supply, lending rate and digitalization (proxied by mobile cell subscription) affect banks’ financial performance, focusing on bank credit and liquid assets, while controlling for inflation and exchange rate variables. It also examines the interaction between digitalization and monetary policy variables on bank performance. Employing an interactive multiple regression model, the study analyzes time series data from 1996 to 2022 sourced from the World Bank. Findings indicate that while stringent monetary policies can constrain bank performance by tightening credit and reducing liquidity, digitalization provides an opportunity for banks to counteract these effects through enhanced efficiency. However, the successful integration of digital technologies is contingent upon adequate investment, regulatory support, and strategic alignment with the banks’ core objectives. The study concludes that Nigerian banks must adeptly manage monetary policy fluctuations and leverage digitalization to sustain and enhance performance. These insights could guide policy formulation and strategic decision-making within the banking industry.

The Impact of Monetary Policy and Macroeconomic Indicators on the Current Account in Developing ASEAN

The current account balance is a component of the balance of payments, in which a surplus or deficit is a form of a country’s external balance or imbalance. Since the 2008 financial crisis and the COVID-19 pandemic, several countries, especially developing countries, have experienced external imbalances, which is related to a continuous pattern of transactions with the rest of the world. Developing countries in the ASEAN region are often vulnerable to experiencing external imbalances which are reflected in their current account balance, which every year the country continues to fluctuate and tends to decrease until it experiences a current account deficit. This research was conducted to analyze the impact of monetary policy and macroeconomic indicators on the current account situation of developing countries in the ASEAN region during the 15 year period of 2007–2021. The Current Account Balance as the dependent variable and the independent variable uses Interest Rates in explaining monetary policy and macroeconomic variables including Exchange Rate, Inflation, Gross Domestic Product, Foreign Direct Investment, and Trade Openness. This study analyzes long-term and short-term effects using the VECM panel model. The results show that Interest Rates in the short term has no effect, but in the longer term has a significant negative effect. The Exchange Rate in the short term and long term have a significant positive effect. Inflation and GDP have no effect in the short term but have a significant negative effect in the long term. FDI has a significant positive effect in the short term and the long term. And finally, Trade Openness in the short term has a significant positive and in the long term has a significant negative effect. Keywords: current account balance, interest rate, macroeconomic, VECM panel

Monetary Policy Dynamics and Economic Growth: An Empirical Analysis of Indonesia's Economy using Time-Series Data and Error Correction Model (ECM)

This study investigates the relationship between monetary policy variables and GDP growth in Indonesia using time-series data from 1986 to 2021. Employing the Error Correction Model (ECM) framework, the research explores the presence of a long-run relationship among the variables and identifies significant monetary policy instruments that drive economic growth. The findings reveal a robust long-run relationship between monetary policy variables and GDP growth, indicating the sustained impact of monetary policy on Indonesia's economic performance. Specifically, the core finding highlights the significance of the inflation rate, exchange rate, and total reserves as influential monetary policy instruments driving growth in Indonesia. This finding helps policymakers better understanding about the relationship between monetary policy and economic development in the context of Indonesia by offering insightful information. By utilizing an extensive time-series dataset and employing the ECM methodology, this study contributes to the existing literature on the role of monetary policy in shaping economic growth, particularly in Indonesia.

Monetary Policy, Institutional Quality and Banking System Fragility in Nigeria

The banking sector is dependent on the economy and environment in which it operates for survival and stability. Lack of effective and efficient institutions and bad monetary policies may spell doom for a country’s banking system. In Nigeria, over the years, many banks did not become distressed, they have folded up as a result of problems relating to institutional quality and unfriendly monetary policies. This study, therefore, examined the effect of both institutional quality indicators and monetary policies on the fragility of the Nigerian banking system from 2000 to 2022. We used a dataset comprising six institutional quality and three monetary policy variables as well as the banking system fragility indices for the period 2000 – 2022. Having examined the statistical properties and conducted some pre-estimation tests, we employed the autoregressive distributed lag (ARDL) technique to determine the short and long run effects of the institutional quality and monetary policy variables on the banking system fragility index for the period. We found that, in the short run, in terms of institutional quality, only voice and accountability index had a declining effect on banks’ stability (worsening fragility) while with respect to monetary policy, loan-deposit ratio had a positive effect on the fragility index (reducing fragility). In the long run, neither the institutional quality nor the monetary policy variables have significant effect on the fragility index of the Nigerian banking system during the period. We conclude that institutional quality and monetary policy affect the Nigerian banking system fragility significantly in the short run and that the former have no significant effect on the latter on the long run. We recommend a focused approach on institutional reforms and periodic assessments and adjustments of the reforms, capacity building, improvement of institutional coordination, and ensuring that policies are not only well-designed but also effectively implemented and a continuous fine-tuning of monetary policies to adapt to changing economic conditions.

Monetary Policy and Inflation in Nigeria: Unraveling the Threshold Puzzle

In this study, we investigated the threshold effects of monetary policy on inflation using two policy tools (monetary policy rate and money supply) for Nigeria from 1980 to 2021. Country specific data on inflation and monetary policy variables controlled with literature specified variables were analyzed using threshold autoregression (TAR). We found a threshold level of 13.69 units and 11.19 units respectively for monetary policy rate and money supply growth capable of making monetary policy management behave differently in inflation control. As an instance, we found that within the periods when policies are below and above the threshold levels (Monetary policy rate, exchange rate and Money supply), only monetary policy rate and money supply growth will be statistically efficient in curtailing inflation in Nigeria. Exchange rate management is only effective in periods of low policy rate regimes. We recommend, among other things, that monetary policy management strive to keep inflation in the economy in line with policy threshold strength for effective price stability.

THE EFFECT OF FISCAL POLICY ON THE RELATIONSHIP BETWEEN MONETARY POLICY AND MACROECONOMIC VARIABLES IN NIGERIA

This study examined the effect of fiscal policy on the relationship between monetary policy and macroeconomic variables in Nigeria: An Empirical Investigation. The study employed a two-stage least square technique as estimation technique, where in the first step; the empirical models of fiscal and monetary policies were separately estimated. In the second step, the dependencies of each policy on the other are then included, to capture the effects of each on the other. Annual time series on the various monetary policy and fiscal policy variables from 1981 to 2020 were obtained from the Central Bank of Nigeria statistical bulletin. Augmented Dickey Fuller (ADF) test was used to examine the stochastic properties of the series. The findings revealed that Gross Domestic Product (GDP), inflation, and money supply are negatively related to monetary policy rate in Nigeria. Also, government expenditure limits the effectiveness of monetary policy in the management of both economic growth and inflation in Nigeria as the effect on inflation reduces from 0.06 to 0.02 and the effect on GDP changes from negative to positive. The study recommended that there should be an establishment of better consultation between both policies in order to secure high and sustainable fiscal and monetary policy mix and hence economic growth with price stability.

Unlocking the Secrets of Economic Growth: Understanding the Transmission Mechanism of the Monetary Policy

This research investigates how changes in monetary policy impact Pakistan's economic growth. trajectory, focusing on macroeconomic indicators and monetary policy's role in long-term economic objectives. The research uses a quantitative approach and econometric methods to evaluate data from 1991 to 2020. Results show that certain variables, like interest rates, capital formation, labor force, and current account balance, positively impact economic growth, while others, like exchange rates, net trade, money supply, and private sector access to domestic credit, have negative impacts. These statistically significant correlations show how monetary policy variables and economic outcomes interact in complex ways.

Indirect Monetary Policy and Performance of the Nigerian Economy

This study was carried out to examine the effect of indirect monetary policy on the performance of the Nigerian Economy from 1993 to 2020. In carrying out the investigation, the researchers made use of various parameters which included real gross domestic product (RGDP) as a variable of economic performance, while open market operations (OMO), monetary policy rate (MPR), cash reserve ratio (CRR) and liquidity ratio (LQR) were used as monetary policy variables. In this study, secondary data were used, while the ex-post facto research design was employed. Multiple regression analyses, unit root tests and co-integration tests were the econometric techniques used for data analysis. The Augmented Dickey-Fuller (ADF) test statistic revealed that the time series properties of the variables were stationary at level, first and second differences. The variables were co-integrated with at least three cointegrating equations for the tested hypothesis. The multiple regression analysis results revealed that indirect monetary policy instruments explained approximately 73 per cent, of total variations in RGDP. The individual variables: OMO, MPR, and CRR were statistically significant to changes in RGDP, while LQR was statistically insignificant. The study found a positive relationship between indirect monetary policy and the performance of the Nigerian economy and further concluded that indirect monetary policy contributed positively to the performance of the Nigerian economy within the period under review.

Conditional Political Cycles in Africa: Myth or Reality?

Abstract This study tests for the presence of political cycles in Africa. Through an analysis encompassing data from 30 African nations over the period 1980–2020, we ask whether political incumbents in Africa rely on monetary and fiscal policy variables to improve their reelection prospects. In particular, we test for the existence of ‘conditional political cycles’, namely, we show that both government consumption and money growth go up during an election year, even when we account for critical institutional factors such as government attributes and political regimes. Our findings reveal a noticeable upswing in both government consumption and money growth during election years, a trend that holds consistent even after controlling for key institutional variables. Further exploration, however, unveils that this phenomenon is nuanced, particularly in the case of political monetary cycles; in particular, our analysis shows that when an African country is classified as a democracy during an election year, broad money falls. But although robust institutions can curtail the intensity of political monetary cycles, they do not exert a similar effect on fiscal variables. Finally, we test for the presence of ‘political credit cycles’ and find no empirical evidence that African incumbents manipulate credit markets to bolster their electoral outcomes.

Monetary-fiscal policy relations in the euro area: The impact on the primary balance

With this paper, our objective is to empirically study public debt sustainability by estimating a fiscal reaction function where the primary balance relative to GDP is assumed to be a function of the public debt to GDP ratio of the previous year and of other macroeconomic variables. In particular, we take into account the effects of the lagged real long term interest rate and of the lagged inflation rate on the primary budget of the governments to account for monetary policy influences. We resort to the fixed effects and to the random effects models for a panel of 12 euro area economies from 1996 to 2020. We find statistical evidence for sustainable debt policies and detect that both monetary policy variables are positively correlated with the primary balance to GDP ratio. This holds both for the fixed and for the random effects estimation, when those variables are included simultaneously.

Nigerian Economic Growth and Monetary Policy Nexus

Due to the unresolved argument on the efficacy of monetary policy in the growth of an economy, this study is conceived examine whether monetary policy variables have predicted economic growth in Nigeria. To achieve this, data were obtained from Central Bank of Nigerian Statistical bulletin of 2022. The relationship between monetary policy variables and economic growth was estimated with Autoregressive Distributive Lags (ARDL). After the analysis, the outputs revealed that the entire monetary policy variables employed were found to have negative and significant relationship with economic growth in Nigeria within the scope of the study. On this note, the researchers are of the opinion that a flexible monetary policy by the monetary authority will help sustain price stability and economic growth in the country. Policy instruments should be well- coordinated and as well have an optimal mix to significantly influence economic growth and stability.