Pdf monetary policy, inflation and economic growth in. The paper examined the impact of monetary policy on economic growth in nigeria by developing a model that is able to investigate how monetary policy of the government has affected economic growth through the use of multivariable regression analysis. It is used along with the monetary policy, which the central bank uses to influence money supply in a nation. The dynamics of monetary policy and inflation in nigeria doi. In nigeria, monetary policy has been in use since the central bank of nigeria was saddled. Pdf the impact of fiscal policy on inflation in nigeria. This thesis investigates the effectiveness and costs of an ncmtype monetary policy in nigeria. Inflation, exchange rate and efficacy of monetary policy. This is approved for students in accountancy, business, computer science, economics, engineering, arts. Pdf this study assessed the effect of monetary policy instruments on. Effect of inflation on the growth and development of the. Monetary policy involves the management of money, the supply of money and interest rate.
The central bank of nigeria left its monetary policy rate at. Impact of monetary policy on inflation control in nigeria. When there is a potent monetary policy instrument, it is expected that contractionary monetary policy shocks should be able to reduce inflationary pressure bongabonga, 2017. Examine the effect of monetary policy on inflation in nigeria. However, he recommends a proper blend of monetary and fiscal policies, as at some occasions monetary policy could fail to achieve its objective. The targets of monetary policy are in the case of the cbn are the operational target, the intermediate target and the ultimate targets. The first view calls for monetary policy to achieve price stability, while the second view seeks to achieve price stability and other macroeconomic objectives. Results show that inflation in nigeria is impassive to monetary transmission variables in the model.
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. Joining the debate between george and marshall on the effects of economic growth on the distribution of. 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. A general overview of monetary policy and inflation in the nigerian economy is the foundation upon which the project is developed. The dynamics of monetary policy and inflation in nigeria. Governor of the central bank of nigeria cbn, godwin emefiele, has said that ensuring price stability and growing the nations economy through unconventional policy is. Ascertain the effect of monetary policy on cooperant factors in economic growth in nigeria. Like any other central bank, the cbn monetary policy stance pursues price stability and sustainable economic growth objectives. Thus, inflation targeting and exchange rate policy have dominated cbns monetary policy focus based on assumption that these are essential tools of achieving macroeconomic stability ajayi, 1999.
These were regressed against inflation rate, the dependent variable. Inflation targeting is a monetary policy regime, which is. In addition to her contemporary fiscal and monetary policies, the nigerian government had implemented various other policies aimed at curbing inflation in the country. This study was carried out to evaluate inflation accounting and control through monetary policy measures in nigeria from 1973 to 2010. The central bank of nigeria cbn adopts monetary policy measures to. Economic instability is witnessed yearly through rising inflation, massive. The impact of monetary and fiscal policies on nigerian. Conceptual framework the concept of inflation has been define as a persistence rise in the general price level of broad spectrum of goods. The real gdp growth is expected to weaken in 2020, hampered by the tepid global demand and supply. This work investigated the determinants of inflation in nigeria using a monthly data.
The objectives of monetary policy may vary from country to country but there are two main views. Inflation, exchange rate and efficacy of monetary policy in nigeria. 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. Pdf the effectiveness of monetary policy in the control of inflation. The neutral monetary policy can help to avoid trade cycles and money inflation. Fiscal policy is the means by which a government adjusts its level of spending to monitor and influence a nations economy. The impact of fiscal and monetary policy on nigerian. The central bank of nigeria, like other central banks in developing countries, achieve. Central bank of nigeria s monetary and credit policy guidelines and money supply do have impact on the level of outputs.
Monetary policy uses a variety of tools to economic growth, inflation, exchange rates with other currencies and unemployment. The effectiveness of monetary policy in the control of inflation in. Introduction inflation refers to the persistent and the continous rise in the general level of. Inflation, economic growth, multiple regression model, monetary policy, nigeria. To stabilize the economy, policy makers have often used fiscal and monetary policies to address inflation.
The main purpose of this study is to empirically examine the effectiveness of monetary policy in controlling inflation in nigeria. Inflation, money supply, exchange rate, monetary policy rate, error. However, study of this nature is known to be subject to a number of problems or constrains, which are peculiar. In nigeria, the monetary policy is the macroeconomic policy laid down by the central bank of nigeria. Each school of thought offered its own policy solutions. Effectiveness of monetary policy on inflation targeting in. This paper discusses the evolution of monetary policy in nigeria in the past four decades. The central bank of nigeria cbn, however, has made efforts to fight it using different policy measures, of which monetary policy is one of them.
Pdf effect of monetary policy on nigerian economy researchgate. During the early years of independence 196164, which coincided with the second development plan, monetary policy actions were focused on the establishment of a strong financial base and the promotion of domestic financial infrastructure, such as the money and capital market institutions. The impact of monetary policy rate on inflation in nigeria. Inflation targeting in nigeriaenglama munich personal repec. These two policies are used to achieve macroeconomic goals in a nation. Inflation is a major problem facing nigeria as a country today. At any rate, combining monetary policy rate with other macroeconomic monetary. Fiscalmonetary policy and economic growth in nigeria. 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. Top objectives of monetary policy in nigeria that does not work. Monetary policy refers to combination of measures designed to regulate the values, supply and cost of money in an economy in consonance with the level of economic activity folawewo and osinubi, 2006. Monetary policy as one of the tools of controlling money supply in an economy of a nation by. Monetary policy effectiveness, output growth and inflation in nigeria. The mpc chose to keep the monetary policy rate unchanged at 12 per cent following todays meeting, partly due to upside risk to inflation.
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. Measured against fiscal policy, monetary policy is said to be quicker at resolving economic shocks uniamikogbo and enoma, 2001. Impact of monetary policy on economic growth in nigeria. But our major concern will be to explore the efficiency of monetary policy in an economy in controlling inflationary pressure in an economy like nigeria. The study adopted interest rate, minimum rediscount rate, liquidity ratio, and cash reserve ratio as proxy for monetary policy instruments and the independent variables. At its 2021 may meeting, the monetary policy committee mpc of the central bank of nigeria cbn left the monetary policy rate as well as all other monetary policy parameters unchanged, broadly in line with market expectations. Nigerias gdp growth rate, interest rate, exchange rate, inflation rate and. 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. Babajide, isibor areghan akhanolu and okafor tochukwu subject. Therefore, nigeria will exterminate the bank element in the deflation of economy. Monetary policy, fiscal policy, economic growth, cointegration, var model.
Secondary data were used empirically to do the assessment. The monetary authorities will be able to neutralize any deviation in the economy with the neutral money policy. Kumo 2015 assessed the impact of inflation targeting monetary policy, inflation volatility and economic growth in south africa between 1960 and 20, using garch model on quarterly data. There were however, no major attempts made to examine inflation and. Monetary policy and economic growth of nigeria charles onyeiwu university of lagos, lagos state, nigeria email. Monetary policy can be developed for encouraging investment and controlling inflation, while fiscal policy can be effective to reducing consumption of luxury and ostentation goods. The effect of inflation price instability in the growth and development of the nigerian economy cannot be overemphasized. Nigeria maintains monetary policy rate at 12% premium. Generally, this study will dwell on the overview of monetary policy situations in the nigerian economy. 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. Central bank of nigeria, monetary policy department. Get free research paper on monetary policy and inflation in nigeria economy cbnproject topics and materials in nigeria. Pdf the paper investigated the effectiveness of selected monetary policy.
Monetary policy and its effectiveness on economic development in nigeria author. Monetary policy is one of the prime economic management tools that governments use to shape economic performance. Monetary policy and inflation in nigeria economy project. Objectives and targets of monetary policy in nigeria. Thus this paper focuses on the use of monetary policy to check inflation in nigeria.
The importance, effect, causes, relationship, comparison, history, role, solutions are discussed. The monetary policy committee mpc of the central bank of nigeria cbn, has retained the monetary policy rate mpr at. The impact of monetary policy on economic growth in nigeria investigates the role monetary policy variable in stabilizing the economy of nigeria. Monetary policy, growth, development, optiaml rate, foreign investment created date. Monetary policy on economic growth in nigeria 19812016. Monetary policy instruments, target and goals 6 list of figures figure 1. At its 2223 july meeting, the monetary policy committee mpc of the central bank of nigeria cbn unanimously decided to leave the monetary policy rate as well as all other monetary policy parameters unchanged, in line with market expectations. Cointegration is a process of combining the degree of nonstationary. It is the demand side economic policy implemented by the government to achieve macroeconomic objectives like growth, consumption, liquidity and inflation. The impact of fiscal and monetary policy on nigerian economic. Central bank of nigerias monetary and credit policy guidelines and money supply do have impact on the level of outputs.
These encompass the attainment of full employment, stability in. In doing this, the ordinary least squares method ols is used to analyse data between 1981 and 2008. The main purpose of this research work is to evaluate the monetary policy in nigeria. This study examined the role of monetary policy instruments in controlling inflation in nigeria. Specifically, the existence of fiscal dominance, a persistent liquidity overhang, an. Nigeria was fortunate in the first half of this decade. The results show that monetary policy is an effective policy in achieving targeted inflation in south africa. This has led to reduction in the standard of living of nigerians. Central bank of nigeria retains monetary policy rate at.