SOURCE:

Faculty: Management Sciences
Department: Banking And Finance

CONTRIBUTORS:

Nwegbu, I. J.
Ibenta, S. N. O.
Nwakoby, C. N.

ABSTRACT:

This study examined the effect of monetary policy on real sectors of the Nigerian economy from 1981 to 2016. This study is inspired by the unsettled disparity in literature on the real effect of monetary policy and its aims on real sector of the economy. The second concern is on the concentration of empirical studies on the effect of monetary policy only on the real sector as a whole without emphasis on sectorial implications of monetary policy management. Specifically, this study evaluated the effect of monetary policy proxied with monetary policy rate, cash reserve ratio, liquidity ratio, currency in circulation, demand deposit, quasi money, exchange rate, interest rate, credit to private sector and public sector credit on agricultural, industrial, building & construction, wholesale & retail trade and service sector output contributions to real gross domestic product. This study was anchored on Keynesian monetary theory. A hypothetico-deductive research design was employed using secondary data that were sourced from the Central Bank of Nigeria statistical bulletin of 2016. The models in the study were estimated using the Autoregressive Distributive Lag (ARDL) technique, while Structural Vector Auto-regression (SVAR) was used to ascertain the response of disaggregated real sector to shocks in monetary policy tools. The result of the analysis were mixed. Currency in circulation, exchange rate, demand deposit, public sector credit and credit to private sector have significant effect on agricultural, industrial, building & construction, wholesale & retail trade and service sector output contributions to real gross domestic product. Only the service sector relative to other sectors that significantly determines the variations in demand deposit, quasi money, exchange rate, credit to private sector and public sector credit. There should be consistency in policy objectives of the Central Bank of Nigeria. Policy inconsistency often sends the wrong signal to stakeholders in agricultural sector and prevent the sector’s long term capital investments that could engender increased productivity in the agricultural sector. Increasing supply of foreign exchange will help gauge the negative effect associated with exchange rate risk in domestic product.