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Monetary Policy and Economic Growth in Nigeria

Asuru, Chukwuemema Ekwe Monday, N. Nwankwo PhD Prof. C. G. Nwikina

Abstract

The broad aim of this study is to examine the effect of monetary policy on economic growth in Nigeria. The study was evaluated empirically over a period of thirty-five (35) years, that is, from 1990 to 2024. Four specific objectives, four research questions and four hypotheses were designed to guide the study. Monetary policy was proxied by monetary policy rate, broad money supply, cash reserve ratio and exchange rate while Real Gross Domestic Product in Nigeria was measured by Real Gross Domestic Product. The study adopted ex-post facto research design and made use of annual time series data which were mainly sourced from Central Bank of Nigeria Statistical bulletin. The techniques of data analysis adopted include descriptive statistics, trend analysis, multicollinearity test using correlation matrix, ADF unit root test, bounds cointegration test and ARDL approach. The findings of the study revealed that monetary policy rate and cash reserve ratio have a negative and significant effect on Real Gross Domestic Product in Nigeria both in the short and long run, broad money supply has a positive and insignificant effect on Real Gross Domestic Product in Nigeria both in the short and long run while exchange rate has a positive and significant effect on Real Gross Domestic Product in Nigeria both in the short and long run. Based on these findings, the study concluded that monetary policy significantly affects economic growth in Nigeria, although the effects of individual policy instruments differ in magnitude and direction. The study recommended among others that Central Bank of Nigeria should pursue a more growth-supportive interest rate policy by avoiding excessively high policy rates that increase borrowing costs for businesses and households. Lower and stable monetary policy rates would encourage investment, consumption, and business expansion, thereby stimulating productive economic activities and enhancing economic growth.

References

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