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MONETARY POLICY TOOLS/ INSTRUMENTS AND ECONOMIC DEVELOPMENT IN NIGERIA, 1986-2016
ABSTRACT: This study focused on Monetary Policy Tools/Instruments and Economic development in Nigeria. Specifically the study sought to; (a) determine the effect of interest Rate on Economic sustainability and Growth in Nigeria (b) ascertain the relationships between Treasury Bill Rate and Economic sustainability and Growth in Nigeria(c) Investigate the effect of Cash Reserve Requirements on Economic sustainability and Growth in Nigeria (d) examine the effect of Liquidity Ratio on Economic sustainability and Growth. The researchers adopted time series data from 1986-2016 which were drawn from Central Bank of Nigeria (CBN) statistical bulletin. The analysis of data was done using various econometric techniques like Augmented Dickey Fuller (ADF) for Unit Root Test, Johansen Co-integration Test and Error Correction Mechanism (ECM). The following results surfaced; Monetary Policy Tools had a negative and less relationship with Economic Growth in Nigeria. Some of the variables in the study attained stationarity at first difference while others are at second difference. The Cointegration result indicated that there is short run relationship among some variables with two Co-integrating vectors. The result of the vector error correction mechanism (ECM) test indicates that only Interest rate exerted significant impact on economic growth in Nigeria while other variables did not. The study recommended that CBN/monetary authorities should tighten money supply either by increasing the Cash Reserve Requirements (CRR) of banks, mopping up excess liquidity from the system through increased OMO operations or raising the Liquidity Ratio of banks.
Key words: Monetary Policy, Interest Rate, Cash Reserve Requirements, Treasury bill Rate, Economic Growth.