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IMPACT OF MONETARY POLICY INSTRUMENTS ON BALANCE OF PAYMENTS IN NIGERIA
Abstract
The study strives to determine the impacts of monetary policy instruments on balance of payments in Nigeria between 1980 and 2019. It aimed at ascertaining the impact of cash reserve requirements, exchange rate, inflation rate, interest rate and money supply on balance of payments in Nigeria. Use were made of secondary data obtained from Central Bank of Nigeria’s statistical bulletin. The study employed regression method of analysis anchored on the monetary theory of balance of payment. The regression model was estimated using vector error correction method. Findings unveil that cash reserve requirement, exchange rate, and money supply are statistically significant and as such, impact on balance of payments in Nigeria. The results further show that inflation rate and interest rate are statistically insignificant though in tandem with theoretical expectations. This implies that not all monetary policy instruments impact on the balance of payments in the long run and short run. The study recommends that monetary authorities allow for a credit economy where the monetary policy committee’s decision significantly impacts the nation’s economic activities. The authorities should ensure stability in the money supply, which may trigger the nation’s cash reserve requirement and exchange rate for stability in the balance of payment.
Keyword: Nigeria, monetary policy instruments, balance of payments, credit economy