SOURCE:

Faculty: Management Sciences
Department: Banking And Finance

CONTRIBUTORS:

Obialom, V. O.
Nwakoby, C.
Adigwe, P. K.

ABSTRACT:

This Study examined the Effect of Monetary Policy Instruments on Economic Development of Nigeria (1986-2016). The objective of this study was to examine the Effects of - Broad money supply captured by currency in circulation, demand deposits and quasi money; Discount rates measured by interest rates and monetary policy rates; Reserve requirements represented by liquidity ratio; open market operation as captured by Central Bank treasury certificates and treasury bill rates, on economic development of Nigeria. The monetarist theory, on which this work was anchored believe that Changes in monetary policy rates should result to direct and proportionate change in Economic Development of a country but some available findings from studies appear to disagree with this proposition. The study used secondary data sourced from World Bank, UNDP, Bureau of Statistics and the Central Bank of Nigeria; The research work selected Nigeria as its sample and used the OLS, Co-integration, Granger-causality and Error Correction model data Analysis techniques, to test the Effect of the independent variables (Currency in circulation, Demand deposits, Quasi money, Interest rates, Monetary policy rates, Liquidity ratio, Central Bank treasury certificates and Treasury Bill Rates) on the dependent variable, economic development (proxy by Human Development index) and tested at the 5% level of significance. The findings showed that; broad money supply components namely, currency in circulation, demand deposits and quasi moneyall had positive but insignificant effect on economic development in the short-run; discount rates represented by interest and monetary policy rates, both had significant effect in the short-run; reserve requirements captured by liquidity ratios, showed positive, and significant effect on economic development in the short-run period while insignificant effect in the long-run; open market operation represented by central bank treasury certificates and treasury bill rates both had no significant effect on economic development in the short-run. Furthermore, all the tested variables except liquidity ratio, showed positive and significant effects in the long-run period on economic development with significant speed of adjustments. The study concludes that monetary policy instruments have significant effect on economic development and recommends amongst others the creation of predictable investment-friendly environment by the monetary authorities through the manipulation of appropriate monetary policy instruments, that will stimulate business activities and encourage household consumptions.