STIMULATING ECONOMIC GROWTH AND WEALTH IN NIGERIA: ROLE OF MONETARY POLICY INSTRUMENTS

Abstract

Monetary policy instruments play an important role of stabilizing the economies of both developed and developing nations of the world. These monetary policy instruments especially the quantitative (indirect instruments) have been used extensively by developed economies to achieved economic growth over the years, while much is left to be desired through the quantitative instruments in Nigeria. It is against this backdrop that this paper examined the role of monetary policy instruments in stimulating economic growth and wealth in Nigeria for the period 1990 to 2022. Secondary data were sourced from National Bureau of Statistics (NBS) and Central Bank of Nigeria (CBN) for its analysis. The study employed the Autoregressive Distributive Lag (ARDL) Model as instrument of analysis to analyse the data. The long run result of the ARDL revealed that money supply (MS) was inversely related to economic growth in Nigeria. However, the negative impact of MS on economic growth was statistically insignificant at 5% level. The short run result also showed that MS had a positive and statistically significant impact on economic growth in Nigeria within the study period. The result also revealed that while the interest rate had a negative relationship with economic growth in Nigeria, exchange rate indicated direct relationship with economic growth in the long run. The Error Correction Mechanism (ECMt-1) showed that a short-run disequilibrium adjusts back to equilibrium in the long-run with an average speed of 86% annually within the study period. The study, therefore, recommended that government should make efforts to lower the existing exchange rate which is so high to support both short and long-term economic growth. The CBN Monetary Policy Committee (MPC) should also mandate commercial banks to make loans available to investors at low (single digit) interest rate to ameliorate the adverse financial challenges bedevilling the sector because most entrepreneurs relied on personal savings and family for funds. This will make loans more accessible for business to be able to raise the level of investment which will increase output and hence, economic growth in Nigeria.