The major objective of this study is to empirically analyze the impact of monetary policy on the economy of nigeria. The government will however be able to achieve the desired goal if some controls can be maintained on the currency. Nigeria interest rate central bank bucks global easing trend and holds rates in march. Fiscalmonetary policy and economic growth in nigeria. Director, monetary policy department, central bank of. Monetary policy and its effectiveness on economic development. Thus adopting monetary policy in manipulating the fluctuations experienced so far in the economy, central bank of nigeria cbn undertake both contractionary and expansionary measures. Fiscalmonetary policy and economic growth in nigeria hrmars. Specifically, the existence of fiscal dominance, a persistent liquidity overhang, an. This has lead to the introduction of instruments of monetary policy to regulate the value, supply and cost of money in.
Monetary policy and balance of payment in nigeria 19812012 udude celina c. This thesis investigates the effectiveness and costs of an ncmtype monetary policy in nigeria. Monetary policy and unemployment in nigeria econstor. The foregoing had been the situation until towards the end of the last regime when the country embarked on a world bank inspired economic reform agenda. In nigeria, monetary policy has been in use since the central bank of nigeria was saddled the responsibility of formulating and implementing monetary policy by central bank act of 1958.
Download complete project material on the effect of monetary policy on the development of nigeria financial institutions from chapter one to five in the past year, the nigeria economy has witness serious micro economy problem, characterized by show in the economic activities, how capacity utilization growing unemployment level debt burden, accelerated inflation intensify exchange rate. To ascertain the level of success of monetary policy against desired objectives. Enquiries concerning this publication should be forwarded to. The first view calls for monetary policy to achieve price stability, while the second view seeks to achieve price stability and other macroeconomic objectives. Empirical investigation of the impact of monetary policy on manufacturing sector performance in nigeria 1986 2012 by imoughele, lawrence ehikioya. The effect of monetary policy on the development of nigeria. Nigerias monetary policy committee, mpc, on tuesday retained the nations monetary policy rate, mpr, at 12 per cent. The adjustment of the monetary policy of nation plays a very important role in the finance of its foreign trade. Introduction during the 1980s and 1990s, the vulnerability of emes to shocks was often exacerbated by high fiscal deficits, underdeveloped domestic bond markets, and largecurrency and maturity mismatches. This paper assesses how fiscal and monetary policies influence economic growth and. Monetary policy rests on the relationship between the rates of interest in an economy, that is the price at which money can be borrowed, and the total supply of money. Monetary policy involves the management of money, the supply of money and interest rate.
Generally speaking, monetary policy formulation and implementation can be easily fashioned based on the duo of money supply and credit availability in the economy. Fiscal policy, public debt and monetary policy in emes. From his findings, onyido attributed this to lack of enough loanable funds to the sector, high interest rate, diversion of funds made available for the sector to other sectors etc. The implementation of fiscal policy is essentially routed through governments budget. Pdf the major objective of this study is to empirically analyze the impact of monetary policy on the economy of nigeria. The main purpose of this study is to empirically examine the effectiveness of monetary policy in controlling inflation in nigeria.
At its 2324 july meeting, the monetary policy committee mpc of the central bank of nigeria cbn decided to leave the monetary policy rate as well as all other monetary policy parameters unchanged, meeting market expectations. The impact of fiscal and monetary policy on nigerian. Citescore values are based on citation counts in a given year e. Trend discussion of some basic macroeconomic indicators on the nigerian economy among others reveal that a the central bank of nigeria is instrument independents and not goal independent. Impact of monetary policy of economic growth in nigeria. In nigeria, the major objectives of monetary policy include the attainment of price stability and sustainable economic growth. Objectives and targets of monetary policy in nigeria.
Overall, the socioeconomic and political milieu, including the legal framework under which the central bank of nigeria has operated, was found to be the critical factor that influenced the outcome of monetary policy. The dismal economic outlook in nigeria above desires investigation into whether or not monetary policy as claimed by the monetarists impact on nigeria s economic stability. This led to the federal inland revenue services establishment act 2007 thereinafter referred as the act 2 on tax administration at the state level in nigeria. The economy often witnessed either expansionary or contractionary monetary policy in an attempt to achieve its set objectives.
The bank manipulates the operating target reserve money over which it has substantial direct control to influence the intermediate target broad money supply, m2 which in turn impacts on the ultimately or. The central bank of nigeria, like other central banks in developing countries, achieve. The monetary policy affects foreign trade financing through guiding deregulation of foreign exchange market, interbank lending, monetization of foreign exchange earning for petroleum export devaluation and domestic price stabilization. Impact of fiscal policy on the growth of agricultural sector in nigeria, 198120 okoh, abo sunday department of economics, federal university wukari, nigeria. This role has facilitated the emergence of active money market where treasury bills, a financial instrument used for open market operations and raising debt for. Nigeria is not enjoying price stability in the least. An econometric analysis of the monetary policy reaction function. To do this data were collected from both primary and secondary source. Monetary policy and its effectiveness on economic development in. Monetary policy and balance of payments stability in nigeria. Proposal the nigeria economy has been experiencing over the years the problems of unemployment, price level instability, lack of sustainable economic growth, balance of payment disequilibrium, inability to mobilize domestic saving and unsatisfactory expansion of domestic output.
Transmission mechanism of monetary policy in nigeria. Monetary policy in nigeriathe central bank of nigeria cbn act of 1958 mandates the bank to promote and maintain monetary stability and a sound financial system in nigeria. As a result, the policy rate remains at a recordhigh 14. The positive impact of these policy tools on economic performance will help the country. However, due credit must be given to the central bank of nigeria. National interest and national development in nigeria. Main library, ambrose alli university, ekpoma, nigeria. Another important principle of ghanas foreign policy involves the closest possible cooperation with neighbouring countries with which the people of ghana share cultural history, ties of blood, and economics.
In spite of these controversies, the nigeria government in collaboration with its monetary authority still adopts monetary policy to regulate the economy. Similar evidence was also found for the gambia, guinea, ghana and sierra leone using the same models. Central bank of nigeria monetary policy frameworkcont. Following the prolonged use of direct controls, the pervasive government intervention in the financial system and the resultant stifling of competition and resource misallocation, a comprehensive economic reconstructuring programme was embarked upon in nigeria in 1986 with increased reliance on market force. This study investigated the impact of fiscal and monetary policy on nigerian economic growth from 1981 to 2015, with the interest in exploring which of fiscal or monetary policy has been effective in propelling economic growth in nigeria and how gdp growth responds to the monetary and fiscal policy shock. In nigeria, such powers are usually vested in the central bank of nigeria cbn and the federal ministry of finance fmf. Impact of monetary and fiscal policies of central bank of. In nigeria, monetary policy has been used since the central bank of nigeria cbn was saddled the responsibility of formulating and implementing monetary policies by central bank act of 1958. That includes credit, cash, checks, and money market mutual funds. At its meeting on 2324 march, the monetary policy committee mpc of the central bank of nigeria cbn unanimously decided to retain its monetary policy rate unchanged, as well as all other monetary policy parametersbucking the global trend of monetary easing amid the coronavirus fallout. Monetary policy increases liquidity to create economic growth. The study posits that monetary policy has a very high determining influence on stock market performance which implies that monetary policy can be used to control stock market activities in nigeria.
The purpose of this study is to determine the impact of monetary policy on foreign trade financing. Learn more about the various types of monetary policy around the world in this article. The most important of these forms of money is credit. Babajide, isibor areghan akhanolu and okafor tochukwu subject. Overall, the socioeconomic and political milieu, including the legal. Most industrialized countries over the years have passed through the agrarian era. It is the demand side economic policy implemented by the government to achieve macroeconomic objectives like growth, consumption, liquidity and inflation.
Primary sources include cbn officials while secondary sources include textbooks, journals etc. Nigeria has had robust debates on monetary economics for years. These encompass the attainment of full employment, stability in. The impact of monetary policy on the economic growth of nigeria.
Apr 16, 2020 monetary policy is a central banks actions and communications that manage the money supply. To demonstrate the general trned in monetary policy as a tool for achieving economic growth in nigeria. However, monetary policy appears more potent in correcting short term macroeconomic maladjustments because of the frequency. Objectives of the study this study basically aims at examining the impact of monetary policy on the economic development of nigeria via its impact on the banking activities. Monetary policy uses a variety of tools to economic growth, inflation, exchange rates with other currencies and unemployment. Monetary policy in nigeria the impact of monetary policy on nigerias economic growth. Fiscal policy, public debt and monetary policy in emerging. Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very shortterm borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency unlike fiscal policy, which relies on taxation, government spending, and government borrowing, as tools for a. To achieve this major objective, the study made use of broad money supply m2. Balance of payments stability in nigeria from 1980 to 2010 using an ordinary least squares ols technique of multiple regressions. The central bank of nigeria, cbn on tuesday explained why its monetary policy committee, mpc, resolved to retain all monetary policy rates and parameters. Thus, the objective of this study is to investigate empirically the impact of monetary policy on nigeria s macroeconomic stability between 1970 and 2009. The estimated result shows a positive relationship between the bop and the monetary variables of money supply, exchange rate and interest rate. The monetary policy tools are classified as direct and indirect or market based tools.
Recent journal of monetary economics articles elsevier. The paper sets out to determine the impact of monetary policy on the nigerian economy during the postreform period using annual series data 1986 2006. Fiscal policy is still widely recognized as a potent tool for enhancing growth, redistributing income and reducing poverty though the nigeria experience is tending to suggest otherwise. Central bank of nigeria cbn monetary policy actual and potential impact on economic growth in nigeria, with a view of identifying the particular channels through which the cbns monetary policy is transmitted in the country. Monetary policy is the policy adopted by the monetary authority of a country that controls either the interest rate payable on very shortterm borrowing or the money supply, often targeting inflation or the interest rate to ensure price stability and general trust in the currency. Thus, the objective of this study is to investigate empirically the impact of monetary policy on nigerias macroeconomic stability between 1970 and 2009. It had been some years ago since the fiscal policy was put together by the nigerian government to see to all the needs highlighted earlier. Nigeria to what extent has the application of monetary policy in nigeria brought about sanity in the operation of commercial banks. The empirical result showed that the effect of monetary policy is stronger than fiscal policy and the exclusion of the degree of openness did not weak this conclusion.
In fact, the industrial sector takes its roots from the agricultural sector. Effect of monetary policy on nigerian stock market performance. National interest, nation, foreign policy, national development, states. The fundamental problem of any government is it economic or otherwise its implementation. Historicaldescriptive approach was used as a method of data collection and analysis which aided in drawing relevant conclusions. Monetary policy, measures employed by governments to influence economic activity, specifically by manipulating the supplies of money and credit and by altering rates of interest. The dismal economic outlook in nigeria above desires investigation into whether or not monetary policy as claimed by the monetarists impact on nigerias economic stability. Pdf abstract the study set to investigate the relationship between monetary policy and economic growth in nigeria. The objectives of monetary policy may vary from country to country but there are two main views. This paper discusses the evolution of monetary policy in nigeria in the past four decades. However, there have been various regimes of monetary policy in nigeria. The impact of monetary policy on the economic growth of. Monetary policy uses a variety of tools to economic growth, inflation, exchange rates. They are tools for economic management that brings about sustainable economic growth and development.
In nigeria, the monetary policy is the macroeconomic policy laid down by the central bank of nigeria. Central bank of nigeria, monetary policy department. The targets of monetary policy are in the case of the cbn are the operational target, the intermediate target and the ultimate targets. Money is simply anything of value that is accepted by the general public. Monetary policy and its effectiveness on economic development in nigeria author. Under the monetary targeting framework in an indirect approach, the liquidity level that is consistent with macroeconomic objectives is determined using base money bm as the operating target, m2 as the intermediate target while inflation is the. Annual time series data, sourced from central bank of nigeria cbn statistical bulletins 19852012 were used to analyze and estimate the three multiple regression models drawn up, with the aid of software package for social sciences spss. Central bank of nigeria shortterm monetary policy framework in nigeria before 2002, the central bank of nigeria had designed monetary policy in line with fiscal duration of one year monetary policy had always faced the problem of non committal to both intermediate and ultimate targets the optimal longterm policy was not consistent. In nigeria, monetary policy has been used since the central bank of nigeria cbn was saddled the. As a founding member of the organization of african unity oau, ghanas policy is to adhere faithfully to the oau charter. Pdf an evaluation of monetary policy and economic growth in. The mpc chose to keep the monetary policy rate unchanged at 12 per cent. Despite the limitation above, the generalization made on the effects of fiscal and monetary policy on banks profitability was made relying heavily on the financial reports of banks, then press statements and the proper study of the current monetary policy ie 20022003 policies and that of the preceding year. The main purpose of this research work is to evaluate the monetary policy in nigeria.
Monetary policy tools are techniques used by cbn to influence the prices of money in an economy. In the history of intellectualism in the country, estimating money demand functions almost. The effect of monetary policy on the development of. The central bank of nigeria cbn act of 1958 mandates the bank to promote and maintain monetary stability and a sound financial system in nigeria. Unlike fiscal policy which relies on government to spend its way. Like any other central bank, the cbn monetary policy stance pursues price stability and sustainable economic growth objectives. Monetary policy formulation in nigeria is usually targeted at achieving some. Monetary policy in nigeria developing countries growth policies are better delivered as full packages since fiscal and monetary policies are inextricable, except in terms of the instruments and implementing authorities. The central bank of nigeria cbn since it was established in 1959 has been playing its primary role of regulating money for the social and industrial welfare of the country. Monetary policy refers to the specific actions taken by the central bank to regulate the value, supply and cost of money in the economy with a view to achieving. To identify the factors that tend to hinder the full attainment of the derived objectives.
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