Monetary Policy and Macroeconomic Instability in Nigeria : A Rational Expectation Approach

Folawewo, Abiodun O.; Osinubi, Tokunbo Simbowale

doi:10.1080/09718923.2006.11978375

Cited by 37 publications

(27 citation statements)

References 11 publications

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“…Monetary policy in the view of [2] is a combination of measures designed to regulate the value, supply and cost of money in an economy in consonance with the expected level of economic activity. Furthermore, [3] stated that three basic monetary policy decisions can be made; the manipulation of money in circulation, the interest rate benchmark, control through a well functioning credit market and banking system.…”

Section: Background To the Studymentioning

confidence: 99%

Impact of Monetary Policy on Economic Growth in Nigeria

Ajibola¹,

Oluwole²

2018

OALib

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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 multi-variable regression analysis. We proxied the variables of monetary policy instruments to include: Money Supply (MS), Exchange Rate (ER), Interest Rate (IR), and Liquidity Ratio (LR). Economic growth was represented by Gross Domestic Product (income) at constant prices. Unit root test was conducted and all our estimating variables were stationary at first difference except the component of interest rate which shows that our model interpretation would not be spurious and a true representation of the relationships that exists between the explained and explanatory variables. Error Correction Model was introduced in our estimation in order to have a parsimonious model. From our result, two variables (money supply and exchange rate) had a positive but fairly insignificant impact on economic growth. Measures of interest rate and liquidity ratio on the other hand, had a negative but highly significant impact on economic growth which supports the assertion by Busari et al. (2002) that monetary policies are better suited when they are used in targeting inflation rather than in stimulating growth. In addition, Engle-Granger co-integration test was done and showed the existence of a long run relationship between monetary policy and economic growth in Nigeria. Finally, granger causality test was done on our variables and the results showed the existence of a uni-directional causality between money supply and economic growth, economic growth granger causing liquidity ratio and exchange rates while a bi-directional causality exists between interest and economic growth. We recommend that partial autonomy should be replaced with full autonomy for the central banks in Nigeria which is invariably subjected to government interference and its politics. Finally, monetary policies should be used to create a favorable investment climate by facilitating the emergency of market based interest rate and exchange rate regimes that attract both domestic and foreign investments. Subject Areas Economics KeywordsMonetary Policy, Economic Growth, Engle-Granger, Instruments Background to the StudyMonetary policy as defined by many authors is concerned with discretionary control of money supply by monetary authorities (Central Bank with Central Government) with a view of achieving stated or desired economic objectives.Most governments try to control the rate of growth of money supply because of the nexus that it has an effect on the rate of inflation.In sum, monetary policies consist of those actions designed to influence the behavior of the monetary sector. Statement of ProblemOver Research QuestionsIn light of this, therefore, the questions to guide this research study include the following:1) Why has the monetary policies of the Central Bank through its instruments and targets not have any significant impact on econ...

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Section: Background To the Studymentioning

confidence: 99%

Impact of Monetary Policy on Economic Growth in Nigeria

Ajibola¹,

Oluwole²

2018

OALib

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“…The growing importance of monetary policy has made its effectiveness in influencing economic growth a priority to most governments. Despite the lack of consensus among economists on how monetary policy actually works and on the magnitude of its effect on the economy, there is a remarkable strong agreement that it has some measure of effects on the economy (Nkoro, 2005) Monetary policy as a combination of measures designed to regulate the value, supply and cost of money in an economy, in consonance with the expected level of economic activity (Folawewo and Osinubi, 2006). For most economies, the objectives of monetary policy include price stability, maintenance of balance of payments equilibrium, promotion of employment and output growth, and sustainable development.…”

Section: Introductionmentioning

confidence: 99%

Impact of Monetary Policy on Economic Growth: A Case Study of South Africa

Precious¹

2014

MJSS

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“…The neoclassic economy brings in the rational expectations theory (Silviu, 2012). Macroeconomic stability is one of the principle aims of fiscal and monetary policy (Folawewo & Osinubi, 2006). For monetary policy to regulate economic stability, its policy should be set so that its major targets are well defined.…”

Section: Monetary Policymentioning

confidence: 99%

Monetary Policy and Its Price Stabilization Effects on the Prices of Building Materials

Kalu

Zakka

Aliagha³

et al. 2015

MJSS

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Inflation has an influence on the general economic activities of the market system, and this includes the building materials market. The influence of inflation on the price of building materials results in variations in the financial planning and execution of a construction project, which hampers meeting the cost targets and maintain profit margin. It is the responsibility of government to regulate the movement of inflation through the use of Monetary Policies. The monetarist economists argue that the major cause of inflation is the increase in the supply of money in circulation. The Monetary Policy being the principal tool used by the government for price stabilization in mind, this study aims to examine the relationship between the inflationary rates and prices of building materials in the face of Monetary Policy. The study covers a period of ten years and considered twenty-four (24) major construction materials.The result shows that there is a significant relationship between the movement of the Monetary Policy Rate (MPR) and the inflation rate. A regression model of y=6894+0.314x, which imply that MPR controls price fluctuation in the general economy, this was not the case with the prices of building materials investigated. The regression of the prices of

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Monetary Policy and Macroeconomic Instability in Nigeria : A Rational Expectation Approach

Cited by 37 publications

References 11 publications

Impact of Monetary Policy on Economic Growth in Nigeria

Impact of Monetary Policy on Economic Growth in Nigeria

Impact of Monetary Policy on Economic Growth: A Case Study of South Africa

Monetary Policy and Its Price Stabilization Effects on the Prices of Building Materials

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