Tag Archives: Monetary Policy

CBN Monetary Policy and Inflation Nexus in Nigeria: An empirical approach (Published)

The study explored monetary policy effect on inflation stabilization in Nigeria. Increasing levels of indebtedness may have reduced the fiscal space for fiscal policy intervention and this leaves monetary policy as the real tool of choice for macroeconomic stabilisation. The question we need to ask then is, how effective is this tool of choice? Monthly time series data from 2009-2018 were used in estimating the model. The ADF test for the stationarity, the johansen cointegration test and the vector error correction model were utilized in testing the variables. The findings from the unit root test did indicate stationarity at first difference 1(1). The cointegration (Johansen) test indicates that there was a nexus linking inflation and all the regressors adopted in the long term. The result of the VECM for the two estimated models shows a self-equilibrating mechanism of 14 per cent and 32 per cent for the first and second models respectively. The findings further reveal that the variables; liquidity ratio, policy rate (MPR), exchange rate, reserve requirement and treasury bills rate all had an effective impact on the inflation rate and that that effect was very significant.  Hence, the CBN’s monetary policy shocks do seem to have the expected traction on the Nigerian economy. The results make it pertinent for the CBN to utilize all the policy measures adopted in order to keep inflation within acceptable thresholds and prepare to keep inflation within the targeted range of 6-9 per cent, no matter the anticipated or unanticipated strong head winds.

Keywords: ADF, CBN, Cointegration, Monetary Policy, Unit Root, VECM

Intertemporal Policy Mix and Stock Market Development in Nigeria (Published)

Given Nigeria’s position as an economic giant in the sub-Saharan Africa, analyzing the country’s macroeconomic policy coordination requires an understanding of its effectiveness in boosting the economy wide aggregate including stock market performance. This paper explores the effectiveness of intertemporal policy mix in fostering stock market development in Nigeria between 1986 and 2018. The specific objective focused on the effect of fiscal and monetary policy initiatives comprising public expenditure, public debt, treasury bill rate and broad money supply on the value of stock traded as a ratio of GDP. Year-end time series data on the variables were analyzed using error correction mechanism (ECM), diagnostics tests and descriptive statistics. The Philips-Perron unit root results reveal that the variables are stationary at first difference. Additionally, the cointegration test show evidence of long run relationship among the variables. It was observed from the estimated parsimonious ECM result that broad money supply and public expenditure positively and significantly influenced the value of stock traded. This indicates that public spending and monetary aggregates are the channels which monetary and fiscal policies foster the development of the stock market development in Nigeria. Given the findings, it is recommended for policy makers to synergize fiscal and monetary policy initiatives in order to foster robust and sustained development of the stock market in Nigeria.

Keywords: Fiscal Policy, Monetary Policy, Nigeria and ECM, Stock Market Development, intertemporal policy mix

Monetary Policy and Inclusive Growth in Nigeria (Published)

The objective of the study is to determine the impact of monetary policy on inclusive growth. The study employed multivariate regression model to establish the effect. Data was collected on PCI as proxy for inclusive growth, and exchange rate, interest rate and money supply as monetary policy tools. The OLS technique revealed a significant variation between money supply and inclusive growth which implies that it will be in the best interest of the populace if monetary policy measures are employed to effect changes in the economy.

Keywords: Growth, Monetary Policy, Nigeria, inclusive

Internet Finance, Monetary Policy Effectiveness and Bank Credit Channel (Published)

With the information technology boom, the development of Internet Finance is justified to have a notable impact on the effectiveness of monetary policy. In allusion to the development of Internet Finance and changes in monetary policy from 2007 to 2018, this paper takes the bank credit transmission channels as an entry point and builds a Vector Error Correction (VEC) Model based on co-integration analysis. In this paper, we attain the influence of Internet Finance on intermediate targets and ultimate targets of monetary policy with the methods of Co-integration analysis, Granger test, VEC model and so forth by comparing bank credit channels and interest rate channels. The results of the research have revealed that Internet Finance weakens the transmission effect of monetary policy through bank credit channels, improves the market endogenous nature of money supply, which hinders the achievement of the ultimate goal of monetary policy.

Keywords: Monetary Policy, VEC Model, bank credit channel, internet finance

Relationship between Monetary Policy and Output Growth in Oil Producing Countries in Africa: Error Correction Model Based On Panel Cointegration Analysis (Published)

This study broadly examined the relationship between monetary policy and output growth in selected oil producing countries in Africa, using time series data spanning from 1980 to 2016. Specifically, the study analyzed the long-run relationship between macroeconomic variables and output growth in selected oil producing countries in Africa.  The study confirmed thestationarity of the time series properties of all the variables in the study, using ImPersaran and Shin (IPS) panel unit root test. The study employed Westerlund Error Correction Based Panel Co-integration test to unify the short run and the long run dynamics. Findings from the study showed that there is a long term co-movement between output growth and macroeconomic variables in the selected oil producing African countries. The results from the long – run model of the fixed effect Regression further corroborate the report from the Westerlund Panel Co-integration test where all macroeconomic variables (RINTR, EXR, WOP and USRINTR) have significant long term impact on output growth. Although, the short – term impacts of these macroeconomic variables on output growth are also significant as shown by the short – run model of the fixed effect regression. Based on the findings of this study, it was therefore suggested that the regulatory and supervisory framework for the financial sector should be strengthened in order to improve the effectiveness of monetary policies of the government.

Keywords: Error Correction Model, Monetary Policy, oil producing countries, output growth, panel co-integration analysis

Understanding the Macroeconomic Implications of the Dynamics of Monetary Policy Measures: Lesson from the Nigerian Economy (Published)

In this paper, econometrics evidence linking monetary policy measures to key macroeconomic goals with emphasis on price stability and unemployment is provided using error correction mechanism (ECM), unit root and cointegration tests in addition to basic descriptive statistics. The unit root test results showed that the variables are mixed integrated. The outcomes of the cointegration test reveal that the variables in each of the models have long run relationship and as such can be represented as an ECM.  The estimated parsimonious ECM show that the current values of cash reserve ratio and exchange rate as well as lagged values of credit to the private sector are positively and significantly related to inflation. On the contrary, the short run effect of contemporaneous and lagged values of interest rate on inflation is negative. Additionally, money supply exerts significant negative effect on inflation during the study period. The result of the estimated unemployment model reveals that the current and first lag of interest rate has significant positive effect on unemployment. The result also shows that the current and third lag of money supply has significant positive impact on unemployment rate. The short run impact of credit to the private sector and third lag of exchange rate on unemployment is negative. The error correction coefficients in each of the models are associated with the expected negative sign and are statistically significant at 5 percent level. Owing to the findings, the paper recommends that the Central Bank of Nigeria should adequately monitor the implementation of monetary policy in order to prevent or reduce bottlenecks that may impair its effectiveness in achieving goals of price stability and employment generation.

Keywords: Cointegration, ECM and Nigeria, Monetary Policy, Price Stability, Unemployment

Monetary Policy and the Performance of Nigeria Capital Market: A Time Variant Analysis (Published)

This study examined the relationship between monetary policy and the performance of the Nigerian capital market using annual time series data sourced from the Central Bank of Nigeria Statistical Bulletin. The objective was to examine the long and short run relationship that exists between monetary policy variables and the performance of Nigerian capital market. Market capitalization and market turnover was modeled as the function of interest rate, exchange rate, monetary aggregates, monetary policy rate and treasury bill rate. The study applied the Ordinary Least Square (OLS) regression technique and causality, unit root, cointegration, vector error correction estimates. Findings revealed that interest rate, exchange rate monetary aggregate and monetary policy rate have positive and significant relationship with market capitalization but treasury bill rate have negative and significant relationship with market capitalization. Monetary policy rate, monetary aggregate and exchange rate have positive relationship with market turnover while Treasury bill rate and interest rate have negative and significant relationship with market turnover. The unit root test found the variables stationary at first difference, the cointergration test validates the presence of long run relationship, the granger causality test proved unidirectional causality while the vector error   correction estimates justified adequate speed of adjustment. The study concludes that monetary policy has significant relationship with performance of Nigeria capital market. We recommend that the monetary authorities should ensure effect monetary policy transmission mechanism that will enhance the performance of the capital market.

Keywords: Capital market, Exchange Rate, Monetary Policy, Time Series Monetary Policy Rate

Effect of Government Policy on Price Stability (1990-2015) (Published)

The study determines the effect of government policies in both monetary and fiscal policies on price stability in Nigeria. Secondary data were sourced from CBN statistical bulletin for GR, GE, CRR, MPR & CPI. The study using OLS technique discovered that the combination of both monetary and fiscal instruments impacted on consumer price index in Nigeria within the period of review and concludes that regardless of the mixed individual impacts of the variables; government policies were able to manage consumer price index to a considerable extent. Thus, recommends enhanced fiscal procedures and monetary policies to facilitate desired price stability.

Keywords: Fiscal Policy, Monetary Policy, Price Stability

Effects of Monetary Policy on Bank Lending in Nepal (Published)

Bank lending and monetary transmission mechanism are closely interlinked phenomena. Banks cannot be efficient in their performance without analyzing the impact of monetary policy actions. On the other hand, central bank cannot take appropriate policy actions without having appropriate knowledge of bank lending behavior. This study attempts to find out the impact of monetary policy actions such as cash reserve ratio, open market operations and bank rate on bank lending. In the study, panel data of 24 commercial banks during the period of 1996 to 2015 were collected and analyzed using descriptive statistics, correlation and regression analysis. This analysis shows that open market operations and cash reserve ratio have negative impact but bank rate  has positive impact on bank lending. Therefore,  the central bank of Nepal should rely mostly on open market operations and cash reserve ratio for monetary operation. Further, the study recommends that central bank should hold cash reserve ratio constant as a cushion for the borrowers from fluctuating lending rates by commercial banks. However, since excessive borrowing will have inflationary effect in the economy, the study recommends that central bank commit commercial banks to open market operations to control short term interest rate and money supply in the economy.

Keywords: Bank Lending, Central Bank, Commercial Bank, Monetary Policy

Macroeconomic Analysis of the Relationship between Monetary Policy Instruments and Inflation in Nigeria (Published)

This study examined the role of monetary policy instruments in controlling inflation in 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. These were regressed against inflation rate, the dependent variable. Secondary time series panel data for the period covering 1982 to 2011, were collected from the Central Bank of Nigeria (CBN) Statistical Bulletin in 2011. The study employed multiple regression technique based on E-views 7 computer software to analyze data obtained on the study variables. Four hypotheses were tested and the null hypotheses were accepted based on the regression results. The study found that interest rate, minimum rediscount rate, liquidity ration and cash reserve ratio had no significant influence on inflation. The study recommended that Nigeria shift from being a consumption driven (import) economy to production based (export) economy for the impacts of these policies to achieve desired results.

Keywords: Cash Reserve Ratio, Inflation, Liquidity Ratio, Minimum rediscount rate, Monetary Policy