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MONETARY POLICY AND ECONOMIC GROWTH OF NIGERIA (1981-2012)
Abstract
This study examined the impact of monetary policy on the growth of Nigeria economy between the period of 1981 and 2012 with the objective of finding out the impact of various monetary policy instruments (money supply, interest rate, exchange rate and liquidity ratio) in enhancing economic growth of the country within the period considered. To identify the stationarity characteristics of the data employed in the empirical investigation, various advanced econometric techniques like Augmented Dickey Fuller Unit Root Test, Johansen Cointegration Test and Vector Error Correction Mechanism (VECM) were employed and the following information surfaced: None of the variables was stationary at level meaning they all have unit roots. But all the variables became stationary after first difference with the exclusion of money supply. However, all the variables became stationary after second difference. Hence they were integrated of order two. The cointegration result indicated that there is long run relationship among the variable with two cointegrating vectors. The result of the vector error correction mechanism (VECM) test indicates that only exchange rate exerted significant impact on economic growth in Nigeria while other variables did not. Equally, only money supply though statistically insignificant possessed the expected sign while others contradicted expectation. The study concluded that monetary policy did not impact significantly on economic growth of Nigeria within the period under review and that the inability of monetary policies to effectively maximize its policy objective most times is as a result of the shortcomings of the policy instruments used in Nigeria as such limits its contribution to growth. The study recommended among others that Commercial banks and other financial intermediaries must be forced to ensure compliance with the stipulated prudential guidelines.
Keywords: monetary policy, monetary policy, Commercial banks, financial intermediaries, interest rate, exchange rate