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1.5 Hypothesis ---------------------------------------------- -- -9
1.6 Study scope and limitations -----------------------------------------9
1.7 Importance of the study-------------------------------------------- - - ------------- - ---9
2.0.2 Development of monetary policy framework in Nigeria ----12
2.0.3 Review of monetary policy before the structure
Adjustment Program (SAP)-------------------------------------------- - - ----16
2.1 Review of the theoretical literature --------------------------------------------- - ----------------19
Program (SAP)------------------------------------------------------------ -------------- -------------------19
2.2 Empirical literature search --------------------------------------------- - -28
2.2.1. Monetary policy framework to combat inflation --------------28
2. 2.2 An assessment of monetary policy performance in Nigeria --30
2.2.3 Proposal to combat inflation in Nigeria --------------33
3.2.3 Diagnostic Tests-------------------------------------------- - -------------------40
3.4 Research approach ---------------------------------------------- - --------- - - ------------41
4.1 Data representation --------------------------------------------- - -------------42
4.1.1 Unit root test ------------------------------------------- - -------------------42
4.3.1 T-tests --------------------------------------------- - --------------------------------48
4.3.2 F-tests------------------------------------------------------- ----- -- --------------------------------49
Resume------------------------------------------------- ------------------------------55
Conclusion------------------------------------------------- -------------------------------------------58
Recommendations---------------------------------------------------------------- - ----------- -------------------59
Bibliography------------------------------------------------- ----------------------------61
This is to certify that the work on this project was originally done by Ezinne
Meshach Chimezie, student in the economics department with tuition
EC Number/2008/647, Caritas-Amorji-Nike University Enugu, Bundestag Enugu.
Sir. PEC OSODIURU ------------------------------------
PROF. CC UMEH ----------------------------------
My deep appreciation and gratitude goes to Almighty God, Source
of knowledge and strength for your mercy and support throughout the period of
this investigation.
I owe a debt of gratitude to many who, in one way or another,
contributed to the updating of this research work. I owe mr.
PEC Osodiuru (my project manager) who diligently devoted himself to his
Pressed for time with a desire to help me overcome turbulent issues that affect my own
Research, despite your personal commitment. Also the efforts of my readers are
they are largely quantifiable among those; Mr. PC Onwudinjo (H.O.D.
Economics, Caritas Uni.), Prof. S.I. Udaba, Dr. CC Umeadi, Mr.M.N. ike, sr.
EO That's right, sir. RO Ojike, Mr. AC Odo, Mr. JC Odionye, ​​Prof. F. Onah, and con
if the list is not exhaustive, Ms. P.N. Okonkwo (my old
Supervisor), I would like to thank everyone.
I will not forget to thank my family and friends,
as they have always been together, an inspiration to my success.
Overall, this research project is dedicated to my family and friends.
The objective of this work project is based on the relative performance of monetary policy in
Nigerian economy. This article discusses the importance of monetary policy as a combination of
Measures to regulate the value, supply, and cost of money in an economy
Compliance with the expected value of economic activities. The study also shows the objectives
and objectives of monetary policy, which include price stability, maintaining equilibrium
Balance of payments, employment promotion, inflation control, production growth, etc.
Sustainable development. The literature review shed more light on conceptual and evolutionary aspects.
Monetary Policy Framework in Nigeria, Monetary Policy Review Before and Supply
Structural Adjustment Program (PAE) and assessment of monetary policy performance
in Nigeria they were widely discussed. also appropriate measures to deal with inflation in the
Economics was also suggested by research tools and techniques when looking at
that there are leaks in the velocity of money through corrupt practices in the system and
diabolical means of creating a cash flow that causes inflation, a variety of unemployment and
Low production growth. The research also showed the interaction between the gross domestic product
Output (GDP) and other monetary policy variables (real exchange rate, real interest rate,
money supply and liquidity ratio) and their respective contribution to the economy. At the
Conclusion: This project proposes complete means to curb corruption with the various laws
implementation in the country.
Monetary policy objectives for most economies include price stability,
maintain the balance of payments, promote employment and
Production growth, sustainable development. These goals are necessary for the
Achieve internal and external balance and promote the long term
Economic growth. The importance of price stability stems from the harmfulness
Impact of price volatility undermining targets. That's really a general
Consensus that domestic price volatility is undermining the role of money
Bonds as a store of value and thwart investment and growth.
Ajayi and Ojo (1981) and Fisher (1993), empirical statements on inflation,
Growth and productivity confirmed the inverse relationship in the long run
Between inflation and growth. When it breaks down into its component parts, this is
Growth due to capital accumulation, productivity growth and the growth rate of
of the labor force has been the negative association between inflation and growth
attributed to the strong negative relationship between it and capital accumulation
or productivity growth. The importance of this empirical
The idea is that stable prices are essential for growth because of capital accumulation,
productivity growth and the rate of growth of the workforce, the negative
The link between inflation and growth has been attributed to the strong negative trend
Relationship between it and capital accumulation and productivity growth
o The importance of these empirical findings is that prices are stable
essential for growth. The success of monetary policy depends on its implementation
economic environment, the institutional framework adopted and the
The execution of monetary policy is the responsibility of the central bank.
Nigeria (CBN). CBN mandates under the CBN Act 1958
Maintain foreign reserves to safeguard the international value of the
He worked as a banker and financial adviser to the federal government.
However, the current monetary policy framework focuses on maintaining
Price stability, while promoting growth and employment, is secondary
monetary policy objectives. The performance of monetary policy depends on some
legal framework in which it operates. The legal framework is quantitative
general or indirect and, secondly, qualitatively selective or direct. The impact effects
the level of aggregate demand times the money supply, the cost of money, and
Credit Availability. Of the two types of instruments, the first is the category
This includes bank variations, open market operations and the mandatory reserve fee.
They are designed to regulate the general level of credit in the economy.
commercial banks. Selective credit control aims to control specific types of credit
Credit. This includes changing the margin requirement and regulating consumers.
Credit (ML Jhingan, 2003).
In any economy, the behaviors of both policies are often entrenched
Banking entities participating in the mediation process. The role of bringing
Creditors and debtors together in this process, the central bank plays a very
important role in determining the price of money (Ebhodaghe, 1996).
From a historical perspective, monetary policy itself is important
Interns for economists and policymakers on impact on the economy. of all tools
available to the government to direct the cause of the economy, money
Policies have proven to be the most visible instrument for achieving medium-term goals
Stabilization objectives (CBN Guideline 2002). Indeed, the formulation of monetary policy
and implementation has become a critical government responsibility, so that the
The economy is not lost. Politics is not done by itself
to achieve some desired goals over a period of time.
In general, the main objectives of monetary policy refer to the
Implementation of accommodative monetary policy measures during the economic downturn
and contractionary monetary policy controls the money supply by belief
that its growth rate affects inflation. The basic purpose of money.
Policies should not be added to themselves, but added to the sectors themselves
Economy as a level of stabilization of capital prices and economic development.
Policies are designed to change the trend of some monetary variables
specific direction to achieve the desired change in currency behavior
Policy. The role of the central bank is to execute appropriate monetary policy.
in line with key economic targets that will support gross growth
Domestic product (GDP), sustained inflation and stable balance of payments
Position. This is done by introducing the direct or indirect monetary approach.
to monitor currency trends. CBN determines the value
Provide money compatible with the country's macroeconomy.
Achieve targets and manipulate the monetary instrument at your disposal to
achieve the established goals. Monetary policy affects the macrocosm
Objectives because it is believed that there is a relationship between the real
Variables. Monetary policy affects every aspect of our economy and finances.
Decisions about buying a car, building a house, starting a business, or expanding
existing ones, either to send your child to school or to learn
Act. The money supply or monetary policy tries to influence the return
Economy reflected in key macroeconomic indicators such as inflation, GDP and
Occupation. It works by influencing aggregate demand throughout the economy, i.e.
the willingness and stability of individuals and businesses to spend on goods and services. At the
Monetary policy pursues two fundamental objectives to promote maximum
sustainable production and employment and the maintenance of a sustainable price level in the
The business. The task of stabilizing production in the short term and promoting the price
Long-term stability first requires several steps that the central bank tries
assess how the economy is doing now and how it is likely to develop in the medium term
Over time, you compare these estimates to your performance and price targets.
If there is a gap between estimates and targets, the CBN must do so.
decide how vigorously and quickly to act to close the gap.
Current economic conditions are not as consistent as Key's latest data
Variables like employment, growth, productivity, etc. largely reflect the state
the past. Thus, to obtain a reasonable estimate of the current and mid-term
economic conditions, the central bank is trying to figure out what is most relevant
Economic developments, such as government spending, are economic conditions
Abroad, financial conditions in the country and abroad and use of new technologies
which increases productivity. These developments are embedded in an economy
Model to see how the economy is likely to evolve over time. Here he is
central bank with an unexpected development like Niger
Delta crisis that stopped oil production and reduced revenue
generation by the government, therefore they must incorporate uncertainties
your model Uncertainty seems to be a problem in all areas of currency
Policy process There is still no set of guidelines and procedures that policymakers can use
It serves to deal with any situation that may arise. Instead, politics must decide
How to anticipate the problem through analysis is far from clear. In fact, the center
The bank spends a lot of time and effort researching the various options.
to deal with different situations. As these issues are unlikely to occur
resolved very soon, the central bank will probably still control everything.
Nigeria did not have a stable macroeconomic policy before or after
during the beginning of the Structural Adjustment Program (PAE). Conditions
Trade deteriorated mainly and partially between 1980 and 1985
Years prior to 1980. The growth rate of the Consumer Price Index (CPI) was
an average of 17.1% between 1980 and 1985, and although it has fallen to about
5.0% in 1986 and 1987, when it rose again from 1988, reaching a peak of 47.5%
1989. It remained consistently high throughout the 1990s, reaching an all-time high of
54.7% in 1994. The current account showed a surplus between 1989 and 1989
1993 after a rather long period of deficit between 1981 and 1988 (there was a
modest surplus in 1984 and 1985 due to austerity measures
by the federal government under the Military Administration of General at the time
babangida). Domestic savings/GDP ratio, whose average is
27.7% between 1970 and 1980, it started to fall in 1981. Between 1981 and 1986 it was
At 13.8%, the instrument's rate follows the same pattern, although
report slightly lower numbers. The budget deficit is chronic and is financed by
Loans from the banking system. The share of commercial banks in the total
Financial assets showed a structural change from around 57.7% in 1986 to 36.4% in 2017
In 1993, the main beneficiary was the central bank, whose participation increased
33.1% to 46.4% in the same period. It is doubtful whether structural adjustment
Program improved the competitiveness of the system as the third largest
Banks still account for a third of total deposits. A fundamental feature of the banking system in
The moment of deregulation is the emergence of great difficulties in the banking system
System. About 42 banks in the system were in serious trouble.
with 45% of loans classified as nonperforming (CBN1994). The
The performance of the major currency and commercial bank indices did not show
Noticeable improvement during renovations. For example, total loans and advances
measured as a proportion of GDP decreased from 25.6% in 1986 to 14.3% in 2017
1990. The aggregate domestic credit ratio, GDP ratio, which peaked at 50.3 percent
1986, 1993 by half (24.5%) with credit to the government that ordered a
mostly The relationship of the two money IM saving trends close. from above
Trend from 19.2 percent in 1981, MI/GDP ratio increased to 11.5 percent in 1993
and the M2/GDP ratio from 30.6 to 20.1%, strictly following the same pattern
negative before the liberalization exercise, the 1987 deregulation exercise resulted
Interest rates that were slightly negative to positive during the period 1987-1990. but
with price pressure afterwards, real interest rates changed dramatically
negative, again for the period 1991-1994. It is observed that the majority
Macroeconomic aggregates have recently become highly unstable
In this environment, this indirect monetary control was introduced in 1993.
Difficulties in meeting SAP targets were largely due to non-compliance
Balanced budget and consequent reliance on central bank borrowing
finance budget deficits. This had an impact on the foreign market as well as negatively
Exchange, money and commodities and the expected role of market redistribution
efficient resources. The extent to which open market operations in government
Invoices can help successfully manage excess liquidity in the system
created by government bonds at the central bank is one of them
should be of interest given the enormity of this problem to reach
economic stabilization goals.
Once a year, the Monetary Authority formulates guidelines aimed at this
the improvement and development of policy variables aimed at ensuring the best
performance of the banking sector and, finally, to macroeconomic advice
Goals or objectives, but confident in implementing such variable policy
conflicting issues that need to be addressed, from the ability to meet
various monetary benefits, as well as depositor satisfaction
shareholders. Indeed, commercial banks are reluctant to assume their responsibilities
Compliance with the rules and regulations established by the Central Bank, p. B. or Open
Market operation (OMO), legal reserve ratio (RRr), interest rate, liquidity ratio,
selective credit control and moral persuasion. These are the instruments of thirst
Bank in control of the activities and operations of commercial banks in other
achieving the macroeconomic objective such as growth, price stability and equilibrium
Balance of payments, full employment. Central Bank of Nigeria (CBN)
Policies helped set the interest rates charged by companies.
Banks, buying or selling securities to control the money supply and changes.
required reserve ratios of banks and other financial institutions. The
Policies affected by other interests can be achieved through open market operations
influence the likelihood that banks will have to take out their own loans
reference rate and the effects of the announcement of changes in central bank interest rates
The asset's minimum rate, which is taken by markets as a statement of
Forecasts and objectives of the authorities. CBN's guide to monetary policy works
by the impact of the cost and availability of credit on actual activity and by the
this in inflation and in the international movement of capital and, therefore, in the exchange
Central Bank of Nigeria and the formulation of the federal government
The implementation of monetary policy more or less finds its final translation
for the economy in real terms. Controversy bothers yes or no
Monetary policies are really having an impact on the Nigerian economy
This study aims to solve
The overall aim of the study is to examine the effectiveness of cash
Politics in the Nigerian economy. The specific objectives are as follows.
Assessing the impact of the money supply on Nigerian economic growth
Determining the impact of the liquidity ratio on economic growth
Determining the interest rate impact on Nigeria's GDP
The hypotheses tested in this study are given in their will forms as follows
H0: The money supply has no significant impact on Nigeria's GDP
H02: The interest rate in Nigeria has no significant impact on GDP
H03: There is no significant relationship between the liquidity ratio and GDP in
This work aims to study the performance of monetary policy
Nigerian economy, impact, assessment and possibly solution to the problem
Problems with the implementation and operation of monetary policy in Nigeria.
This study will be very useful for bankers, investment analysts and government.
Agencies, academics, public and private sector, in addition, it will be useful
Politicians trying to design a dynamic and credible monetary policy
A measure of control over the ability of commercial banks to create money and therefore to
Influence on the effective development of the economy.
Monetary policy is defined by the Central Bank of Nigeria (CBN) as a combination of
Measures to regulate the supply of value and the cost of money in an economy, in
Correspondence with the level of economic activity. Odufalu, (1994).
Monetary policy as a combination of actions by monetary authorities
(e.g. CBN and Treasury) to directly or indirectly influence both
the supply of money and credit to the economy and the structure of interest rates
for economic growth, price stability and equilibrium in the balance of payments. Him
added that CBN is empowered by Decree 25 of the 1991 Law to formulate and
Implementation of monetary policy in Nigeria in consultation with the Ministry of Finance
subject to the approval of the President. (Onyido, 1993) sums it up when he says
that monetary policy is therefore applied to affect the availability and cost of
Credit to control monetary policy. usually describes the
Measures taken by the central bank to use tools/instruments at its disposal
In particular, the quantity and supply of money has an impact on monetary conditions.
macroeconomic assets.
These objectives usually include price stability, full employment and high profitability.
Growth rate and balance of payments. Achieving these goals is
make the country achieve internal and external trade balance
I pay. The exercise of monetary policy using tools/instruments to regulate the
The amount of money available to achieve stability in the economy is based on the premise
that there is a stable relationship between the amount of money injected
economy and economic activities. Although the way he
The central bank regulates its money supply differently from place to place
divided into two main groups. The first group argues that monetary policy should
Target price stability as your only major objectives. The other macroeconomic objective
fights for the adequate regulation of the money supply and, more broadly, for the control of the permanence
Price increase to ensure a sustainable and balanced development of the economy.
In general, central bankers and economists are less divided in their perceptions
monetary policy objectives than on their views on the role of headquarters
The band must play a role in achieving these goals.
In accordance with its statutory mandates, the monetary policy objectives of the CBN
since their inception, they have been as follows;
Achieve price and exchange rate stability at the national level.
maintain a favorable balance of payments.
Development of a solid financial system.
Promote rapid and sustainable economic growth and
Under development.
In this context, this section focuses on the development of Nigeria
monetary policy over the last 40 years. Consequently, the different
Regimes and reasons for their adoption and qualification of their family members
successes and failures.
a) The exchange rate target regime (1959-1973)
The implementation of monetary policy in Nigeria under colonial rule
it was largely due to conditions in Britain. the monetary tool
The policy at the time was the fixed exchange rate between the pairs.
Nigerian Naira and Pound Sterling. This was very useful as attaching the
The exchange rate provided a more effective mechanism to maintain
Balance of Payments Profitability and Inflation Control in Nigeria
The business. This fixed peg lasted until 1967, when the pound sterling became
devalued Due to civil unrest in the latter part of this period, the monetary system
The authorities did not see fit to devalue Nigerianaira out of sympathy
with the pound sterling. There were two main reasons for this: First, an important
The participation of the Nigerian naira would only increase the domestic price of imports
without appreciable impact on exports, which were by far the main market
Products. Instead of devaluing, the monetary authorities opted for a ceiling
Nigerian Currency to US Dollar but imposed strict import restrictions
due to strict official exchange controls.
After the international financial crisis of the early 1970s that led to
the devaluation of the US dollar against the Nigerian currency, Nigeria
abandoned the dollar peg and returned to the pound sterling in 1973,
when the Nigerian currency was pegged to the US dollar
developments, the serious disadvantages of pegging the Nigerian naira to a single
The currency became apparent. A clear case was that the naira had to be subjected to a "de".
de facto devaluation” in sympathy with the dollar when economic fundamentals
otherwise stated, 1973 and 1975, respectively. It was in this context
that the need to independently manage the Thenaira exchange rate has become
very convincing and firmly established. Then she was arrested by Nigeria in 1978.
coin in a basket containing 12 coins from your major trading partners.
b) Monetary Target Regime 1974 to date
From 1970 onwards, the economy underwent a major structural change that had an impact
the conduct of monetary policy. Oil dominated exports in 1970 with more than 96 percent
since 1980. While non-oil exports (mostly agricultural) declined rapidly from 42.4 percent
in 1970 to 16.9 percent in 1973 as a result of increased sales accessing the
Oil government, balance of payments imbalance and foreign laws
Reservations were a thing of the past. In fact, Nigeria's foreign exchange reserves were rapidly increasing
over 1,000 percent in 1975 from around 100 million in the late 1960s
3.4 billion in 1975. The need to finance post-war developments also led to a
significant growth in public spending, increasing inflationary pressures.
Under these circumstances, the monetary authorities adopted a new monetary policy
Structure. This development marked the beginning of currency steering in Nigeria,
which included the use of market (indirect) and non-market (direct) instruments.
Consequently, it was anticipated that the main focus of monetary policy would be monetary policy control.
monetary aggregates, a policy posture based largely on the assumption that inflation
it is essentially a monetary phenomenon.
c) Direct control, 1974 – 1992
The main objective of monetary policy during this period was rapid stimulus
and sustainable economic growth. Consequently, the monetary authority imposed
quantitative interest rate and oral credit allocation for the various sections presented
sectors of the economy In general, "preferred" sectors such as agriculture,
Manufacturing and construction were selected to receive the most favored treatment, in
Generous loan terms and a below-market loan rate.
The main monetary control tool used by the CBN was the
Setting targets for total lending to the national economy and prescription
low interest rates. With these instruments, the Monetary Authority hoped that
Flow of funds for loans aimed at promoting rapid development through
Provide financing to preferred sectors of the economy. The level and structured
interest rates were set administratively by the CBN. Both the deposit and
Lending rates have been set to achieve a socially optimal allocation of resources,
promote the orderly growth of the financial market, cushion and reduce inflation
Government domestic and international debt service charges. At the
In implementing the policy, sectors were divided into three categories: (1)
agriculture, industry and housing “preferred”, (2) “least preferred”
import and trade in general; and (3) "other". This classification allowed
Treasury officials will channel resources to sectors at preferential rates
are considered priority areas. These fees were typically below CBN. For sure
Minimum rediscount rate (MRR), which itself was low and not market driven
powers. Empirical evidence during the control regime era showed that the flow of credit
to the above sectors did not achieve the prescribed objectives and did not have a positive impact
on levels of investment, production and domestic prices. In general, the bank leaned towards the practice
disadvantageous check on your loans. The main factor affecting the
The effectiveness of monetary policy during the control regime era was the absence of
Autonomy of the instrument by the central bank. During this period, monetary policy was
dictated by the Treasury and, as such, influenced by short-term political influences
Considerations Since mid-1981, crude oil prices have fallen with falling prices.
from a high of $40 per barrel to $14.85 in 1986. This led to severe externalities
sectoral imbalance. Emerging economic development has led Nigeria to adopt this
Structural Adjustment Programmer (SAP) under General Ibrahim Babangida as the
Military Head of State, as a political option to channel the economy
sustainable growth. Overall, SAP's strategy encompassed structures and
sectarian reforms. Reforms included deregulation of the financial system
to create a market-oriented financial system that would support efficient finance
mediation. Thus, the program involved reform and dismantling of control.
Regime governed by the assignment of term credits, a subsidized regime and
regulated interest rate regime, exchange control and import licenses. the genesis
von SAP initiated a financial sector reform regime characterized by free entry
and free exit, as well as the use of indirect money control tools.
Before the introduction of the Structural Fit Programmer (SAP) in 1986
the economic environment that monetary policy management has overseen
characterized by the growing importance of the oil sector, which could be called
Period of boom and bust, the growing role of the public sector in the economy and
depending on the external sector.
According to Ekezie (1997), the main objectives of monetary policy were conservation
relative price stability and a healthy balance of payments position. cash
Management depends on the use of direct monetary instruments, such as credit
Limits, selective credit control, managed interest rate and exchange rate
B. Requirement of Cash Reserves and Special Deposits. the use of the market
based instrument was not viable at this time of tightness and underdevelopment
nature of the financial market, the insufficient supply of relevant debt instruments. the most
popular instrument of monetary policy is the enactment of credit rationing guidelines,
mainly in the form of prices for components and all
Bank loans and loans to the private sector. The sectoral allocation of bank loans
in CBN policy was to boost the manufacturing sector and thus contain inflation
Adebayo print (1996). Interest rate control at a relatively low level was done
to stimulate investment and growth. Occasionally, a special deposit was required
Reduction of free reserves and banks' credit creation capacity.
Liquidity coverage ratios based on their liquidity were imposed on banks in the mid-1970s
Full deposit liabilities, but as cash rates were typically lower than voluntary rates
Maintained by banks, they proved less effective than credit restrictions.
Operation. However, in the 1970s it became increasingly difficult to achieve this goal.
Monetary policy targets with the sharp increase in public spending; The
The financial sector experienced rapid monetary expansion during this period because
Expenses resulting from the monetization of its vast oil revenues (Ojo, 1992)
Overall monetary total, government balance of payments position
moved in an unwanted direction. The bank's compliance with credit standards was below average.
satisfactory in the sense that this was not the case with the low interest rate on government bonds
Enough to attract private sector savers and as CBN was required by law to absorb
unsubscribed part of the instrument of government, tip money was usually
injected into the economy. As a result of the effectiveness of direct monetary policies
Tools to control the money supply and used in the pre-SAP era, there was a
Consensus for a shift to indirect control technique over market-oriented one
Financial system to promote the effective mobilization of financial savings and the
Assignment. Also in 1981, the minimum reserve requirement was removed. Banks now trust him
in desired nations, from liquid funds to total commercial bank deposits
accept in your own interest. With well-developed spot markets, modern
Banks can do better with cash reserves as low as 1 to 2 percent of the deposit. Despite
CBN is still required to act as a lender of last resort, so commercial banks are required to do so.
Guess what the fine will be if they have to borrow money from CBN. an
keep your mind focused official target ways to money supply and that's it
Announced in 1980 in the government's medium-term financial strategy.
SAP was enacted and approved in July 1986 against the collapse of the international oil market.
the consequent deterioration of the country's economic situation. the structural
The Adjustment Program (PAE) aims at balance and budget balance
Payment visibility in the change and structuring of production and consumption.
Standards to eliminate price distortions in the economy reduce heavy dependency
based on the export of crude oil and sustained growth. the money goals
The SAP introduction policies were maintained as already mentioned "Stimulating the
production and employment and the promotion of internal and external stability".
Monetary policy then aims to bring about a state of emergency for a market-oriented financial economy.
Economy and efficiency in the allocation of resources. According to this view, monetary policy
framework, the upper limit for individual bank lending has been removed for banks
that met some specific scheduled criteria established by CBN. criteria included
specific cash reserves and liquidity ratio, presidential directives, legal minimums
Paid capital, reasonable fee and good management. the meeting or
The efficient functioning of the market was also a prerequisite.
Despite the currency reforms introduced in the early days of the SAP, some of the
Monetary governance issues have steadily increased over time. The
Control compulsion remains an ineffective control structure and uncertainties
created by tax operations. Since 1990 some dynamic reforms have been introduced.
For example, in 1990 the maximum limits for the expansion of bank credit ceased to apply.
allow exceptions as before. Commercial and commercial banks were also affected
Equal treatment since its operations were formed from the experience of reducing similar ones
System effect. In 1991, the cash reserve requirement was changed so that your
Base expanded to include all deposits, payables, savings deposits and tokens
Deposit. Also in 1991, the CBN introduced the risk-weighted index
Capital adequacy requirement and statement of accounting standards, the President
Among other things, the guidelines define the criteria that banks must follow
Rating of bad loans. In 2011, it became the Nigerian Asset Management Company.
(AMCON) bought bad loans from commercial banks. The first
The bad loan buying round that took place was actually limited to
Margin lending by intervened banks and non-performing loans (NPL) by them
banks intervened, but by restricting the purchase of the loans they bought
banks did not just intervene on margin loans. AMCON bought it all
Defaulters of all banks. CBN was targeting an overall default rate of five
percent across the industry. CBN would not allow bad loans to pile up again
more than five percent of total credit in the banking sector. In March 2011,
AMCON said it purchased about 1 trillion bad loans from 22 bad and reserved loans.
banks set aside in the second phase of its banking bailout program.
AMCON will issue a reserve record of 3 trillion now, but the corporation
spent around 1.7 trillion on April 6. The 30 billion portion was the only part of the
Series 1 titles open to the public; the crowd was big enough to identify
where the price of the bond should be. Beginning of AMCON's commercial activities and
The inherent benefits will spread throughout the economy and maintain financial stability.
before the company expires.
Financial Sector Reform (FSR) has become an important part of structural policies
Adjustment program in Nigeria with interest rate deregulation in August
1987. Regarding care, however, research efforts have been made in this regard.
minimal compared to the effort of the other components of the program
such as the lateralization of trade and exchange rate reforms. Even where there is research
available, the focus was more on the institutional aspects of
program and here the focus was on the banking sub-sector (Ikhide and
Alewole 1994, Ojo 1993, Soyibo and Adkanye 1992). although more recently
Attention now turns to financial sector reform. first it's done
that may influence the structure of commercial banks and non-bank intermediaries
macroeconomic performance; (Gertler 1998) provides an excellent overview of the
Relationship between financial market efficiency and macroeconomics
He can. For example, the behavior of monetary aggregates has important implications
for the price level and the balance of payments. secondary, will
increasingly clear that the ability to maintain stabilization policies, such as the exchange rate
Reforms may crucially depend on structural changes in the financial sector.
In particular, such structural changes in the financial sector can be crucial for the
efficient application of monetary policy. Without such structural changes it would be
difficult to achieve significant progress in macroeconomic stability.
Third, some recent literature has begun to focus on the issue of sequencing and
Calendar of the general financial sector stabilization and liberalization program
Sector. The speed, order and timing of certain components of the financial sector
Reforms can impede the achievement of stabilization policy objectives.
The opposite is also true. Next, and more importantly for our present purpose, the
The introduction of indirect methods of monetary control can facilitate the transition
a regulated economy to an unregulated one. Over the years there has been a gradual change
in the general approach to economic management in Nigeria and other LDCs. After
several unsuccessful decades emphasizing the role of state intervention in
Developing countries are now making more efforts to promote growth
Market signals guidelines for resource allocation. that was
accompanied by the promotion of private sector development.
However, such efforts to encourage the private sector are believed to be better
be implemented through a stronger role for market forces in resource allocation
On business. Thus, direct control of monetary aggregates is emphasized
the imposition of restrictions on the price or amount of credit must give way to an indirect route
Methods to influence the liquidity of financial institutions through market forces.
This has several implications for the conduct of monetary policy in Nigeria.
The business. The objectives of the commercial sector reform during the SAPup are so far
generally defined as increasing size, improving efficiency, and increasing
Diversity of the financial system of the economy. This objective is achieved by
Financial liberalization, seen as a process of approximation to the market
fixed interest rate as well as market-determined prices for all financial classes
Products, banking system characterized by symmetric entry and exit conditions for all
Participants, the growing internationalization or opening of domestic markets to
international competition and barriers limited to the introduction of new financial barriers
Products. In the Nigerian context and as part of this research, this is
came into operation, allowing the market to dictate the rate at which prevailed
during most of the reform period, the elimination of direct credit restructuring balances
Financial intermediaries and improvement of commercial banking infrastructure. you are good
Developed financial systems are needed to ensure that indirect methods of monetary policy
administration works fine. However, the transition from underdeveloped,
depressed or thin financial market is very difficult to achieve, as the direct
There are control methods. It's a paradox then. The purpose of this literature is
examine how this relationship between trade finance liberalization
The monetary and sectoral policy environment developed during the period
Adaptation in Nigeria. From our discussion so far, there are three points this study will address.
Try to focus on how it comes about;
(a) Important links in monetary policy are subject to direct controls.
(b) The problem of initial conditions, especially the budget deficit and the
The scope of the restructuring agreement may vary from country to country
(c) In addition, countries can also differ in the existing depth
and maturity of its financial system.
The lack of direct monetary policy instruments is well known and
documented and needs to be emphasized again. Despite the current deregulation
of the financial sector and the beginning of the transition to market instruments
of money management, conducting effective monetary policy in Nigeria
was limited by a number of factors, most notably the lack of official discipline until
1995. Lack of central bank instrumental autonomy often leads to policy changes
and the widespread reversal and distress in the financial sector reduced this
Monetary policy effectiveness in the post-SAP period. Since the founding of
Structural Adjustment Programmer (SAP) has monetary policy headquarters in Nigeria
broadly restrictive and intended to contain demand pressures on domestic prices
and the foreign exchange market, among other stabilization objectives. Consequently, the
The shift to a market-based approach is related to the potential to increase efficiency
Address the root cause of currency instability and financial difficulties. also the growth
Target significantly surpassed for monetary and credit aggregates
leading to a double-digit acceleration in the inflation rate and further pressures
exchange rate. Self-regulation has an equally small effect. The level of
Liquidity outside the trading tape system is another factor that prevents this.
effectiveness of monetary policy. In addition to the volume of monetary authorities
they have no measure of that liquidity. Therefore, it is impossible to aim so substantially
Liquidity is affected by monetary policy and the economy in general. That
includes five main elements;
(I) the public announcement of the medium-term inflation target.
(II) The institutional commitment to price stability as the main monetary objective
Policy to which other purposes are subordinated.
(III) Exclusive information strategy that includes many variables and monetary aggregates
the exchange rate used to decide whether to discontinue the policy instrument.
(IV) Increase the transparency of the policy strategy through communication with the public
and the market on the plans, objectives and decisions of the monetary authorities.
(V) increase the transparency and accountability of the central bank to achieve its objectives
inflation targets Commercial banks are the main creditors
Policies with CBN as monetary authority. The objective of monetary policy.
They are basically to control inflation and maintain a healthy balance of payments position.
Country to guarantee and promote the external value of the national currency
adequate and sustainable level of economic growth and development. The trade
Banks play a crucial role in the implementation of general monetary policy
Monetary policy aims to achieve some macroeconomic objectives. an accountant
cyclical monetary expansion may increase output and help lower levels
short-term unemployment, but you can add the inflation problem
extremely high magnitude, will overshadow the performance improvement benefits and
level of employment, the amount of feedback would go to commercial banks
under customer economy.
Direct monetary control techniques that were in vogue in the 1960s and 1970s
were maintained until June 1986. The instrument had a significant impact
Nigerian economy. Hence the expansion of the total amount of credit allowed during the 1980s.
The ceiling was falling, reflecting the policy of limiting growth
liquidity of the banking system. Direct monetary control was simply not used to
they control but also determine the general expansion of credit;
(I) The proportion of bank loans.
(II) Handelsbank asset portfolio.
(III) Proportion of bank loans to small domestic companies.
(IV) Percentage of band loans to domestic borrowers.
(V) Percentage of rural deposits granted as loans to rural residents.
(VI) Categories of banks exempt from the credit limit.
(VII) Cash Deposit for Imports.
(VIII) Interest rate cap, etc.
The foregoing justifies the statement that the financial sector, in particular subbanking,
Sector in the most heavily regulated sector of the economy. According to an investigation, it is a sector
whose players are literally not instructed on what to do. how much change
your products and services? How do you distribute your winnings? The implication of this is this
Commercial banks in their role as financial intermediaries
it is precisely at this point that they have some control over the use of their resources. with
the introduction of indirect monetary control, the Nigerian economy witnessed the cleanup
Increase the excess liquidity in them by issuing stabilization papers, as
October 1990 (but suspended since March 1993) and commercial bank replacement
Cash reserve ratio in 1989 and 1990. The Bank's creditworthiness continued
reduced by increasing the maximum liquidity ratio for commercial banks from 25 percent
Raised to 30% in 1987 and maintained until 1999. The Monetary Experience
The policy in Nigeria grew out of the CBN Act 1958 and its subsequent amendment.
shaping the bank act inspires what should be short and form
Long-term monetary policy objectives complement short- and medium-term objectives
federal government budget targets. The CBN Act of 1958 established the objectives
the bank as being;
(I) Issuance of legal tender in Nigeria.
(II) Maintenance of foreign reserves to safeguard international legal values
bid coin.
(III) promote monetary stability and a sound financial system in Nigeria and;
(IV) He acted as a banker and financial adviser to the government.
Over the years, the main objectives have become to maintain a
single-digit inflation rate, maintaining exchange rate stability, promoting
Financial system, high growth in production and generation of jobs and
Increase the overall efficiency of the economy. The agitation of the presentation for the
Deregulation of the oil industry will increase prices for goods and services in the US.
market by more than 100 percent. A survey showed that there was a significant price
Market increase due to minimum wage demands by unions and
this price increase has doubled. Also the partial cancellation of oil subsidies
products again provoked a new price increase. At the height of the oil boom, it was the
Naira against the US dollar averages around 50.65%. federal government
met all conditions for an IMF loan, except the requirement for a naira devaluation. At the
Pursue the monetary policy objectives to which the CBN has directly committed itself over the years.
and indirect policies and instruments. Direct actions include:
Imposition of ceilings on interest rates and credit expansion in banks, application of
Credit extension allocation section, administrative determination of the amount of
Interest rate structures and other quantitative control measures. the indirect
Measures include the required cash ratio, a market-based minimum interest rate policy
Rediscount rate, liquidity rate, open market operations and moral conviction. direct
The currency control era lasted until 1992. However, since 1993, the CBN has changed
market-based instrument in line with the global trend for a market-based instrument
monetary control frame. CBN Guidelines (2002).
The monetary policy instruments used in the indirect control regime have evolved over time
Years in the monetary authority, time rotates according to market trends
the economy, in particular the monetary aggregates, are these key instruments;
(a) Open Market Operation (OMO)-: Refers to the purchase, sale of governments
Securities (Nigeria NTB Treasury Act), including CBN for the purpose of increasing or
reduction in the money supply. The Open Market Operation thus expands the monetary base
Increased money supply and lower interest rates. In 2002, the CBN
introduced another currency instrument known as CBN certificate as a complement
the use of state security to conduct open market operations (CBN Directive
2002). The CBN certificate differs from other instruments in that it
should not be underestimated, as it consists of increasing the efficiency of monetary policy action,
given the instability of the only available treasury. In terms of impact, sales and
Buying a CBN certificate has the same implications as selling and buying others.
government values.
Last Central Bank of Nigeria certificate expired in August
2002 and has since removed CBN plans as currently in progress
Introduction of a new short-term instrument called the “CBN-OMO” bill to complement the
BNA in CBN wallet for OMO, especially for liquidity management. the omo
Invoices have a term of 30 to 60 days and are issued as needed
in the Dutch auction system and is exclusively for authorized trades (CBN
2002). Likewise, the Open Market Operation (OMO) is carried out weekly in
Secondary market, mainly in short-term government bonds
transit times or to meet the different preferences of participants
Market. OMO is supplemented with income and bonuses
Window operation including repurchase agreement (REPOS) at discount
Houses will continue to play the role of main market trader (CBN
Directive 2002/2003)
(b) Discount Policy (Rediscount) -: Corresponds to the condition, in which and how
much of the CBN lends to commercial banks at the end of their rate formation
complex. These are mainly changes in the discount rate (minimum rediscount form
MRR Ratio) and affects the volume of loans to banks and the monetary base
and expands the money supply, a fall in the discount rate reduces the monetary base
and a reduction in the money supply. The CBN facility where loan discounts and
Discounts for banks are called "discount windows". MRR is too much
used to influence the level and direction of other courses, determines whether the
The commercial bank follows a policy of monetary easing or monetary tightening. The
The MRR is currently set at 18.5 percent.
(c) Reserve Requirement -: Cash and cash equivalents are imposed
by the CBN that commercial banks are obliged to maintain a certain amount of reserves. it is
the minimum amount of reserves (or eligible liquid funds) that commercial banks
must be proportionate to the total liability of the deposit. For each category of
Deposit liabilities, an increase in the cash ratio or liquidity ratio reduces their value
Deposit that can and will be secured by a certain level of base money
contraction of the money supply. On the other hand, a decrease in the proportion leads to a
Expansion of the money supply, since multiple deposits can be made
Place. CBN currently sets the required reserve at 12.5% ​​for cash
reserve ratio. However, for those on the bench, evidence shows that 20 percent
The outstanding loan goes to the real sector, the cash reserve ratio has been reduced.
(d) CBN Certificate: It was first issued in 2001 for liquidity purposes
to absorb the excess liquidity created by the rapid monetization of windfall gains
based on crude oil revenue. It will be issued as needed.
complement traditional monetary policy tools to curb illiquid growth
desired level (CBN Directive 2002).
(e) National Savings Certificate: It is a means for long-term values
expand and offer alternative investment opportunities for banks and companies
in public. It is used to complement efforts towards more sustainable management,
the persistence of excess liquidity in the economy, while facilitating savings and
investment growth.
(f) Federal government promotion actions: Intended to promote the
government to meet its long-term financing needs in the capital market. It is
it will also change the course of the bank credit fair in favor of the private sector. The
The instrument was discontinued in the 1980s, and no effort is being made to revive it.
(e) Moral suasion – involves subtle appeals to banks by the Bank Committee
and other media to briefly apply the fix and provide guidance.
Of course, the use of moral suasion was not recognized by CBNalone. Almost
Every government function took the opportunity to speak publicly
they are urging banks to follow one kind of policy or another. explained from above
Instruments It is important to know that three of these instruments are
It is currently used as a monetary policy tool in Nigeria. have been reviewed and
zipped with the other tools mentioned above which are three tools;
(I) Open Market Operation (OMO).
(II) Discount Policy (Rediscount) and;
(III) Reservation requirement
Nigerian monetary policy tightens to reduce inflation rate
as one of the most important to maintain price stability
objective of monetary policy. This monetary policy framework aims to
reducing inflation presupposes the existence of a stable and predictable economy
Relationship between monetary aggregates and other economic variables in the
The business. The monetary structure operated by the CBN brings with it a specific objective
Growth trajectory for one or more money supply definitions over one year or more than one million
CBN postponed pre-financial year 2002 deadlines to mid-term 2002
CBN has switched to a medium-term perspective, meaning it has made a decision
The money supply does not necessarily have to be achieved within a year
Framework that CBN dedicates to how to maintain balance in financial assets
Bonds do not significantly diverge to create bullish or bearish pressure
interest and price. Thus, the Bank used the instrument at its disposal
ensure that demand and supply for financial assets, including cash, are equal
consistent with the public's desire to keep them and the willingness of providers
to take care of them. The framework is based on the quality of money theory and
money supply process. The monetary target is predicted using empirical evidence
that inflation is primarily a monetary phenomenon and therefore the
Authorities must control supply in others to control inflation. The amount
The theory of money is expressed mathematically as;
P = price level
Q = total real production (income)
The link between the total amount of money in circulation and total spending
in final goods and services produced in the economy, the turnover rate of MV
that is, how many times a year is spent on average a unit of Thenaira
Purchase of the total quantity of goods and services produced in the economy. inflation
Focus on the recent monetary policy strategy, whose basic idea is that the Central Bank
The bank adopts or assigns an explicit numerical target range from inflation to manufacturing.
Achieving this goal is its main objective. It's important to remember
that this does not mean that the central bank ignores the unemployment rate or the unemployment rate
Economic growth. It simply means that as long as inflation remains within the
given range, the central bank is free (and indeed expected) to stabilize it
The business. However, the basic tenet of the inflation targeting regime is price stability,
Central bank and government responsibility and discipline
Proposals being studied as a remedy to deal with inflation in Nigeria are
given the specificity of the Nigerian economy. This is because it is not
everything else, macroeconomic policy, can only be conceived in terms of it.
special economy. Among the areas to which government policy should belong
aimed at alleviating the problem of inflation include the following;
(I) Distribution network: Distribution channels for the medium
they were unnecessarily long and heavy. both
Manufactured goods and agricultural products pass through a long chain
distribution before reaching the final consumer. this has overtime
developed a strong impact on inflation, as prices rose more and more
profit stage. Because the mentality is that the distribution of goods and
services are more profitable than production, the role of traders is important
The price trend intensified. The government must not back down
Recognition of the distribution network with a view to shortening
Channels between producers and consumers.
(II) Incentives to productive authorities: The government should introduce
a system of incentives that will increase the production of goods and services.
Practice in the past was mostly and directly on demand.
management, such as B. Consumer income control.
these demand management measures have not been very successful.
how agriculture, energy and the road network should be
top priority through various incentives to encourage alumni to increase
its performance, also the good road network to transport its performance
from its point of production to the endpoints to reach the consumers who
I wish these products also electricity that can help agriculture.
spends Eve as raw material for industry. These have the effect
to reduce or mitigate price increases. the manufacture was
a troubled sector, mainly resulting from the high level of foreign use.
Stimulation should be selective and more focused on them.
Companies that use local raw materials.
(III) Government revenue policy: salary-related revenue policy
Boosts have been introduced on the site with the aim of gaining a
political point. Therefore, a salary increase/adjustment must be made
with minimal advertising. In this way, the seller would be caught off guard.
so even if there are price increases here, the result will be the highest
Buy level not the status quo ante where sellers raised theirs
Prices pending payment of said exchanges
(IV) Pricing policy: The mixed economy nature of the Nigerian economy
often meant that the state partially owns the factors of production
which sets the prices. Furthermore, the State has
The Productivity Price Board grants increases in the prices of basic commodities.
if the government raises the price of an item it manufactures
directly what consequently pursued for its transfer to other sectors.
There is an event every time the federal government raises the pump price
of gasoline, which were consequently transferred to other sectors
the economy. Therefore, it is recommended that future price increases of
These products, which are important inputs for other sectors, should not be used
undertaken. On the other hand, the implementation must be done carefully.
worked to prevent abuse.
(V) Exchange rate policy: Another area where the government can
Improving inflation management is the exchange rate control policy.
Politics takes the form of rolling the exchange rate
(Devaluation/revaluation/revaluation). An economy that suffers
of the curve, but with an overvalued currency it must be getting close to that
Question of rebalancing the exchange rate cautiously. It is because
Devaluation/depreciation causes an increase in the transfer price
Levels that further fuel the rate of inflation could spiral out of control. The
Assuming a flexible market demand exchange rate for the nairin
September 1986 was partly responsible for accelerating development
Inflation rate. Government policy in this regard should
Swipe naira exchange rate to improve among others.
the inflation trend. The current global economic crisis is speaking
the economic exchange rate. There were tweaks and new
Adjust the naira to the dollar just to ensure that the global economy
Recession will not push prices higher in Nigeria
economy, which is a positive development. The Central Bank through
Commercial banks provided guidance where necessary.
Make adjustments when selling currencies like dollars,
Euros, yen, pounds, etc. just to make sure our location is not affected.
transaction with the outside world.
(VI) Absence of multiple policy objectives: This is the second requirement
for an efficient inflation targeting framework is the absence of other
another (main) policy objective other than the inflation rate. This implies that
The monetary authority must be willing to refrain from targeting other
Display such as exchange rate issue, revenue growth, the level of
Unemployment, wages, etc. are the inflation target under these circumstances
because the only main objective should be the monetary authority
to achieve focus.
Certain methods were used in carrying out this work, this chapter
explains in detail the procedures to follow upon arrival
Impact of this research work, the research decision is the structure
to study a research problem or in other worlds, refers to the
Data collection methods to be used
Investigation and analysis of a research problem. data collection in
yours includes a variety of individual library activities
Extract information from material quantities that are available against it
this job. Considering that there are two main ways of
There is data collection (ie primary and secondary sources).
Monetary Policy Performance in Nigeria as Research Associate
The study will adopt a structural autoregressive approach to establish
A relationship between monetary policy in Nigeria and the economy
Growth. Secondary data are and will be used in this research work.
are available from the Central Bank of Nigeria (CBN) Statistical Bulletin.
The VAR model is an econometric method that
Specification parameters, estimation and formulation aids
Monetary policy and its model in Nigeria.
Equations that form the model, theory and literature
Check in the previous chapter if it was determined that there was
Causal relationship between monetary policy and the Nigerian economy. At the
In this section we continue to pursue the same objective, realizing our
Model. The model is intended to test the effectiveness of monetary policy.
Nigerian economy. The approach is to modify the model.
Specify a multiple regression equation composed of internal raw data
Product (GDP), based on the independent variable (i.e.,
coin offering, integration, exchange rate and reason for disqualification).
It is obvious that the money supply, interest rate, exchange rate, etc.
The liquidity ratio will affect the gross domestic product in Nigeria
The model is given as;
β1,>O, β2>0, β3<0, β4<0
b) Definition of the initials of the variables.
Variables used in the template above (in abbreviations) are unambiguous
and is shown in full below,
MS = money supply
EXR = exchange rate
INT = interest rate
LR= liquidity ratio
ei = error term.
It is assumed that βo deals with the constant variable, β1 is the coefficient of
The money supply (MS) is expected to be greater than zero (β1>o)
because it is positively related to gross domestic product in Nigeria
β2 is the expected exchange rate (RER).
greater than zero (RER >o) due to its positive relationship with the gross value
National product in Nigeria. β3 is the interest rate coefficient (Int)
which is expected to be less than zero (Int < o) due to its negative value
Relation to Gross Domestic Product in Nigeria. While β is 4
is the liquidity ratio (Lr) and is expected to be
Negative relationship with gross domestic product in Nigeria.
We estimate the model parameters after receiving the data.
We used statistical techniques of regression analysis to obtain the
parameter estimates. The template techniques to use
Analyzes are coefficient of determination, F test and t test.
Ordinary least squares (OLS) regression techniques are used
whether it is useful for estimating gross domestic product in Nigeria
is the dependent variable. This goes back to the statement
Variables in the equation involving money supply, exchange rate
Interest rate, interest rate and liquidity ratio.
Some statistical and econometric tests are used for the evaluation.
Regression, this includes R multiples, which is the correlation
Coefficient and measures the extent to which variables are R-related
Esquire measuring the coefficient of determination
Percentage (proportion) of variation of the dependent variables.
The F statistic measures overall significance; the beta coefficients
measures the relative importance of each of the independent
Variables test, t-statistics and Durbin-Watson tests for automobiles
Correlation of errors in the regression equation.
The cointegration test and the unit ceiling test would be specified as
Diagnostic test. Although with several lags of the variables, respectively
estimated coefficient will not be expected
significant. However, stationary tests are very important time series.
that it has been postulated that all time series are confronted with the same
Floating stochastic trend problem in data structure.
In this study, the secondary method of data collection was processed in the
data collect. For this, we chose to use the secondary method.
study because it is considered the most appropriate method
the necessary information in the shortest possible time.
this was selected along with other data collection tools
for this study because of an additional advantage it has over other
Determine the performance of monetary policy in
Nigeria, we will adopt the VAR economic model because it is the best
explains the performance of monetary policy in Nigeria. The car-
The correlation is due to the occurrence of lagged values ​​of
dependent variable, and the term vector represents the fact that
Management of vectors of two variables.
The approach used in this study stems essentially from
secondary sources. This is considered plan structure and
Research strategy designed to get answers
research issues Ensures necessary data is collected.
and they are accurate. However, secondary data is used in
This study was obtained from the Central Bank of Nigeria (CBN).
Statistical Bulletin.
In econometric analysis, it is usually a matter of finding E
Build the existing relationship between different economies
Variables involved in the analysis. In that sense, this chapter
serve as an attempt to evaluate the performance of monetary policy
in the Nigerian economy. It does this by checking the type of
Gross Domestic Product Ratio in Nigeria
and money supply, interest rate, exchange rate and liquidity ratio.
This must be done using regression analysis.
The computing device is Statistics/Data Analysis (stata) tm
programmed software.
The first point or problem of analysis in this chapter is the implementation of the
Unitary thinking test as stationary with Extended Dickey Fuller (ADF)
Test. Dickey Fuller Extended Results consisting of the test
Originally generated statistics and critical values ​​are displayed
in Table 4.1 below.
Reject the null hypothesis (Ho) of the unit root of the calculated ADF value
absolutely greater than the critical value. off the table
above it is observed that the null hypothesis of the root of unity is not possible
rejected So the variables are not stationary. Why
difference of each of the variables.
Table 4.2 (ADF and critical values ​​in absolute numbers)
Automatic Document Feeder Variable Delay 1%
From the illustrations above, meanings can be easily added
each of the following variables.
Ho.: Monetary policy variables have unit roots.
Ho1: Monetary policy variables do not have unit roots.
Once all variables (i.e. real exchange rate, real interest rate,
The money supply, liquidity ratio, and gross domestic product) have a unit
roots in them, which is consistent with the null hypothesis
The stats are below the critical (tabbed) values.
d. (RER, RIR, MS, LR, BIP).
where d = differential,
The table above shows that all variables are stationary after the first
Since all variables are integrated in the same order, i.e. h a
Therefore, we suspect first-order evidence for cointegration in the
model, the result is shown below.
Story 4.2 shows that the error term is stationary in its level form
because the increased absolute values ​​of Dickey Fuller (ADF) and
2.658 is greater than the 1%, 5%, and 10% critical values ​​of 2.654,
1950 or 1602 means there is a long term
Relationship between the dependent and independent variable
Variables. So there is cointegration between addicts
and independent variable.
Variable Coefficient Robust Pattern
From Table 4.4 above, the estimated model is as follows:
BIP= 11,72867 -0,102819Rer + 0,0007359Rir+ 4,48e-078Ms +
RER: An increase in the real exchange rate reduces GDP by
RIR: An increase in the real interest rate will increase GDP
MS: An increase in the money supply increases GDP by 4.48e-07
LR: An increase in the liquidity ratio will increase GDP
R2: 07813, that is, about 78.1% of the total variation in GDP is explained by
the independent (explanatory) variables
As the error term has no unit root, when checking
Error Correction Model (ECM)
Dfuller ecm, Lag (10 not constant Dickey Fuller test increased to
Roof Unit No. NOTE = 29
---Absolute Dickey Fuller Interpolator---
1% critical test stat
Z(t) 2,658 2,64 1,94 1,602
From the figure above, it can be seen that the value of
The error term is greater than the critical values ​​and therefore the error
The correction model (ECM) has no unit root.
RER - β<O Parties
From the table above, all independent variables agree
except the real interest rate. The sign of real interest
Rate (RIR) is a problem as if suggesting that an increase in real interest rates is taking place
The rate boosts long-term economic growth, which contrasts
Economic theory and conventional wisdom issued by oreconomic
growth is reduced.
4.4.1 t tests
The calculated t-statistic for all variables is greater than the
critical table value, eg. B. the calculated
Value for RER, RIR, MS and LR. This implies that the effects
each economic growth variable is significantly different from zero.
1) Coefficient of multiple determinations (R2).
2) Student's t-test
H1: The only parameter is significant
Table 4.6
MS (6.94) +2.056 Significant
LR (3.73) +2.056 Significant
From the previous figure, all variables except real interest
Rate (RIR) are statistically significant and therefore also the null hypothesis
rejected for all variables, wait for the actual interest rate.
4,42 f-stats
Fcal = 4,5,6 Ftab = 2,74
Since Fcal is greater than Ftab, hence the null hypothesis
(Ho) rejects that the overall estimate is not significant
we conclude that the overall estimate is statistically significant.
This test aims to determine whether there was an autocorrelation in the
Model. To achieve this, we assume that therandom values
The variables are temporally independent applying the technique
by Durbin Watson (dw) statistics.
Autocorrelation is defined as "correlation between members of
series of temporally ordered observations” (Gujarati 2003:442)
i) dk < dl: rejected Ho, d. h Presence of first-order positive autocorrelation.
ii) dk > (4-dl): reject Ho, d. h Presence of a first-order negative autocorrelation
iii) du <dk<(4-du): accepts the null hypothesis (Ho) dh. without autocorrelation.
iv) dl < dk < du or (4-du) < dk < (4-dl) the test is inconclusive
Where dl = lower limit
K= 5 (number of explanatory variables)
N-K = 26
As du<dk<4-du, we accept the null hypothesis (Ho) and conclude
that there is no autocorrelation.
The asymmetry/kurtosis test for normality is asymptotic or large
sample and whether they are based on the ordinary least squares residuals
test calculates OLS asymmetry and kurtosis measures
residual and follows the chi-square distribution (Gujarati 2004).
Ho: β =0 (the error term follows a normal distribution)
H1: β ≠0 (the error term does not follow a normal distribution)
decision rule
Reject Ho if the probability of X2(chi) < 0.05 because the probability of
0.6967 > 0.05, we accept H0 and conclude that these error terms
followed the normal distribution.
£ 10.000 -
0,3105 -
Where m = presence of multicollinearity
NM=absence of multicollinearity
Multicollinearity is not an issue as no correlation is exceeded
0.80 (excluding the main diagonal).
Table 4.7
Standard D.LGDP coefficient
=6,97565 = 6,97 %
The test between the long-term equation and the short-term equation
measures the speed of adjustment resulting from the economy
Fluctuations in monetary policy variables. From Table 4.7 are the
Absolute value of the error correction model coefficient (6.97%).
Percentage, shows the discrepancy between the short term and the
long-term. 6.97% shows that there is a very small (slow) rate
adjustment in each period. The residual coefficient
indicates the imbalance between the long term and the short term
The growth of the economy will be corrected in a year.
This research project followed the evolution of Nigerian monetary policy.
Variables such as interest rate, exchange rate, money supply, liquidity ratio and
others have been X-rayed to provide the reader with background information. That
discussed economic development in terms of monetary policy under the
verified period. The heyday of the Nigerian economy in the 1970s, where the
growing importance of oil the growing role of the public sector in the economy
despite fairly serene economic problems such as those prevailing
Under certain circumstances, money management increasingly saw the weakness of the
monetary control framework and large swerve of crowd fiscal operations
Money and credit gargets. The oil boom of the 1970s has come to an end
1980s Strict economic controls were established to prevent deterioration. On this
Marco, monetary policy applied more vigorous credit limit. selectively
Credit controls and interest rate regulation. Despite these actions, the money
Expansion was very rapid, especially in the 1980s when there was a temporary oil boom.
It happened as the monetization of oil revenues fueled money supply growth in the 1980s,
initiated by high domestic credit targets was unsatisfactory.
No wonder the economy faced the necessary trend between 1980 and 1985.
The growth in production was accompanied by layoffs and a high rate of
Unemployment Inflationary pressures continued while the balance rose
external debt burden. The monetary policy problem has been widely adopted
of the last decade and which includes the apparent ineffectiveness of the
monetary control structure based on direct instruments and government fiscal systems
The operations, in particular, increased central bank financing of budget deficits.
This gave rise to the Structural Adjustment Program (SAP) launched in July 1986.
a philosophy of renewing economic deregulation that would lead to its elimination
Price distortions and resumption of rapid growth in non-oil sectors. The
The basic instrument of the new strategy was the assumption of a realistic exchange rate.
Policy added to the liberalization of foreign trade and the payment system.
Build confidence in market forces to determine price and
Rationalization of the public spending program. monetary policy through
The same general objectives as before were expected to play a unique role
Restoration of economic stability in Nigeria. Industry credit standards have been
was reformed to give banks some flexibility in their lending operations, in August
1985, which served as the beginning of this study. The attitude of monetary policy was
therefore, a strict measure to reduce excess liquidity
as B. Withdrawal of all deposits on outstanding external payments, arrears and
Public sector deposits with banks in 1986 and 2006, respectively.
The reason for the cancellation of all interest rates charged by banks was the increase in interest rates
bank credit added to the economy; similar to related banking development
on credit limits and industry credit standards was very bad
Liquidity in the capital base of commercial banks increased from N5 billion to
N25billion in 2004 and hit execution in 2005 to secure a strong
financial system through monetary policy.
The impact of the Structural Adjustment Program (PAE) on the economy and the
in view of monetary developments was quite positive in relative terms, but
Economic recovery cannot be relative, but full economic recovery can be
cannot be performed within a short period of program time. However, the
Monetary policy problems seemed destined to last so long
Significant causes not eliminated, monetary target not achieved
achieved because over time it becomes increasingly difficult to enforce
especially as frequent changes were made to the composition of the loan and
timely data are generally not available. Nor the sectoral credit regulations
usually applied by banks and, in fact, it could not be the final use of the credit
guaranteed. First, monetary policy has not achieved the rate of
Synchronization with the control as provided in the control structure, when
The fiscal operation deviated from the targets, the monetary evolution did not
maintain the underlying assumptions and therefore the stability of domestic prices, and
external balance, which are important, and the objectives of monetary policy
could not be guaranteed. Under these circumstances, a deliberate attempt was made to
to improve the efficiency of monetary policy in the 1990s for this
Administration, the plan to move to the use of direct monetary policy was formalized
Announced in early 1991, but apart from liberalization measures passed since then
1986, in particular the deregulation of interest rates. Some actions were taken
since 1990 to pave the way for the use of such indirect monetary instruments
the extension of the discount rate definition, equal treatment of all banks in
the monetary control process, the redefinition of legal reserves,
the reintroduction of CBN stabilization documents on increased liquidity and
Reforms that include increasing the paid-in capital of banks, introducing
the weighted measure of capital adequacy, consistent with the prudential guideline
Accounting standard and promulgation of banks and other financial entities.
Instrument Regulation (BOFID) No. 24 Law 25 of (1991).
In particular, most instruments of direct monetary policy were abolished
mid-1990s and especially 1996 to make way for the contemporary need for
the time under the measures that have been implemented increases at least they are paid
Capital to N500 million in 1997 and to N2 billion in 2001. The abolition of the sectoral law
Upon landing in 2005, it was increased to N25 billion, a flexible reserved cash variant
Required (CRR) and Liquidity Ratio, which were 12.5% ​​and 40% respectively
between others. The shift to a market-based monetary system in
developing countries is unique. One wonders if, how
technology can be used effectively.
However, one of the lessons of the financial liberalization measures is the fact that
Promote the development of financial markets in the financial system Critical processes
Minimum conditions for the effective use of the money market instrument
It can be obtained in the previous area if the conditions are fully met. exist
Scope to improve the situation to pave the way for more effective development
Implementing these instruments must make vigorous efforts to eliminate them.
the excess liquidity that has prevailed in the economy since 1988
continues the harmonization of fiscal and monetary policies to further increase
Competition in banking and financial institutions to close potential gaps
of the economy and improvement of the database of the banking system.
The general conclusion that emerges from this study is that monetary policy
the measures adopted during the reporting period became effective

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