Monetary Policy and Real Sectors in Nigeria
Read the full paper (PDF)Abstract
This study examined the relative effectiveness of selected monetary policy instruments on the performance of two key real sectors in the Nigerian economy. The paper focused on the period 1981-2016 due to its significance in the history of monetary policy in Nigeria (financial sector liberalization started in the year 1986). Time series data sourced from the Central Bank of Nigeria (CBN) statistical bulletin and the World Development Indicator Database published by the World Bank were used in this study. Agricultural and manufacturing sector output were used as the proxies for real sector performance; while money supply, interest rate, broad money growth rate, and credit to the sectors were the predicting variables. The pre-estimation tests (i.e. unit root and cointegration) shows the time series are a mix of order of integration and a long run relationship was also revealed by the ARDL Bounds cointegration tests conducted on the estimated models. The estimated models revealed that money supply had positive and significant effect on performance of the real sectors in the short run and also expected to have a positive effect on the both sectors in the long run. Interest rate proved to be an insignificant predictor of the performance of the agricultural and manufacturing sector. Broad money growth rate impacted positively and significantly on the output from both sectors in the short run; but negatively in the long run. Credit to the both sectors had positive impact on both sectors in the short run but a negative and significant impact in the long run. The study recommends that money supply should increase to these sectors as flow of bank credits to the sector should also continue to increase. Moreover, a single digit interest rate on loan from the commercial banks to help encourage investment in the agriculture and manufacturing sector in Nigeria.