Effectiveness of Monetary Policy in Stimulating Economic Growth in Nigeria

Abstract

This study examined the effectiveness of monetary policy in stimulating economic growth in Nigeria between 1990 and 2019. Secondary data were sourced mainly from CBN publications. The theoretical framework was based on the Keynesian transmission mechanism. In the cause of empirical investigation, various advanced econometric techniques like Augmented Dickey Fuller Unit Root Test, ARDL Bounds Test and Error Correction Mechanism (ECM) were employed and the result revealed that all the variables were stationary at first difference except monetary policy rate that was stationary at level, meaning that the variables were integrated of different order justifying ARDL Bounds Test and error correction mechanism test. The ARDL Bounds Test result indicated that there is a long-run relationship among the variables with the lower bound and upper bound less than the calculated at 5% level of significant. The result of the error correction mechanism (ECM) test indicates an 88% adjustment back to equilibrium. It is therefore recommended that since economic growth in Nigeria is greatly influenced in the long-run by interest rate and reserve requirement making monetary policy an effective tool in stimulating economic growth. Nigerian government through its monetary authorities should unveil other policies that will stimulate economic growth not only in the long run but also, in the short run period