Effect of Monetary Policy Instruments on Economic Growth of Nigeria from 1985-2016.

Abstract

This research work examined Effect of Monetary Policy Instruments on Economic Growth of Nigeria from 1985-2016. The study was anchored mainly on the quantity theory of money. The researcher used secondary data from the Central Bank of Nigeria (CBN) Statistical Bulletin from 1985-2016. The data collected were analyzed using descriptive statistics such as Mean, Standard Deviation and Skewness and the relationship between the variables of the model was tested using Autoregressive Distributed Lag Model (ARDL) regression analysis after the data was found to be stationary and integrated of different orders. The result of the ARDL regression analysis shows that monetary policy rate has positive but insignificant relationship (p>0.05) with economic growth, whereas liquidity ratio has a negative relationship with economic growth. The negative relationship between liquidity ratio and economic growth is significant at 5% (p<0.05) level of significance. Thus, this leads to the acceptance of the null hypothesis for hypothesis one and two as the p-values of the f-statistic are greater than 0.05 (insignificant at 5% level of significance). This study concludes that monetary policy does not affect economic growth in Nigeria significantly. It is thus left for further study on fiscal policy or the combination of the two to see the effect on economic growth. It was recommended that the Central Bank of Nigeria should further develop the financial sector through making more funds available to the private sector by reducing monetary policy rate which affects interest rate ceiling on loans to the private sector. And that there should be consistency in policy objectives of the CBN. Policy inconsistency often sends the wrong signal to stakeholders in various sectors.