AN EVALUATION OF MONETARY POLICY IN NIGERIA AND ITS IMPACT ON ECONOMIC GROWTH (1984 – 2015)

AN EVALUATION OF MONETARY POLICY IN NIGERIA AND ITS IMPACT ON ECONOMIC GROWTH (1984 – 2015)

ABSTRACT

The study looked at how Nigeria’s monetary policy affected economic growth. The study specifically attempted to examine Nigeria’s monetary policies and economic growth. The study focusses on main growth components such as Gross Domestic Product (GDP) and price level, and a qualitative research method was used. The variables of interest relevant to the study include real GDP (RGDP), broad money supply (M2), required reserve ratio (RRR), discount rate (DIT), and inflation rate (INF). The data is analysed using econometric techniques such as the Unit Root test, Johansen Cointegration test, Ordinary Least Squares (OLS) approach, and Granger Causality test. The study’s findings revealed that there is no pair-wise causation between M2 and RGDP, RRR and RGDP, INF and RGDP, RRR and M2, DIT and M2, DIT and RRR, INF and RRR, and INF and DIT at 5%, with probability values exceeding the standard 0.05. Based on this, the study recommended that there be a consistent fight from the demand and supply sides, as well as a political approach through political and policy stability. Second, an effective tax policy should be implemented, making it impossible for tax evasion and avoidance to achieve the goal of income policy. Finally, constraints to the effectiveness of previous monetary policies should be eliminated and consistent and more widely adopted.

Chapter one

INTRODUCTION

1.0 Background of the Study

“Monetary policy is known to be a vital device that a country can set out for the maintenance of domestic price and exchange rate viability, as a critical condition for the achievement of a sustainable economic growth and external viability” (Amasomma, 2011); furthermore, According to Dwivedi Monetary policy is the deliberate use of monetary instruments (direct and indirect) available to monetary authorities, such as the central bank, to ensure macroeconomic stability.

Monetary policy is fundamentally a tool for carrying out the mission of monetary and price stability. Monetary policy is simply a program of action implemented by the monetary authorities

typically the central bank, to control and regulate the supply of money to the public and the flow of credit in order to achieve set macroeconomic goals.

Monetary policy is the set of actions aimed to manage the value, supply, and cost of money in an economy in accordance with the level of economic activity.

It can also be defined as the art of regulating the direction and movement of monetary and credit facilities in order to maintain stable prices and economic growth (CBN 1992).

Like any other developing country, Nigeria’s government implements three types of public policies to achieve the goal of income distribution and resource allocation. These tools of public policy include: monetary policy, fiscal policy and income policy tools.

In Nigeria, the government has historically relied on monetary policy to achieve particular economic objectives. These macroeconomic objectives include employment, economic growth and development, balance of payment stability, and a reasonably steady general price level.

The reason for selecting monetary policy is that it has significant consequences for both fiscal and income policy initiatives.