ABSTRACT
This study sought to investigate the impact of monetary policy on economic growth in Nigeria, with a focus on determining the dynamic responses of each policy variable that best suits trade openness in Nigeria. The model employed in this study is the Error Correction Mechanism. The time frame for this study spanned between the years 1990-2019. This study found that there is a long-run relationship among monetary policy variables and economic growth in Nigeria.
However, the significant relationship of Average Price index on Real Gross Domestic Product, suggest that monetary policy as a policy option had been active in influencing these macroeconomic variables to achieving economic stability and sustainable growth in the long – run. While the insignificant effect of Broad Money Supply, Labour Force and Interest Rate revealed that the adoption of monetary policy measures such as cash reserve ratio or open market operation by the monetary authority has no significant impact on the variables to regulate interest rate and mitigate price instability in Nigeria.
Furthermore, the result suggests that money supply which is the variable of interest may have been affected by change in economic activity, which influenced the desire to hold currency for unproductive purposes. Despite this, the result shows that the supply of money in particular has influence on the macroeconomic variables, which has proved it to be effective to control output in Nigeria economy within the period under study. Based on this, it was recommended that monetary policy measures should be well co-ordinated so that the desired behavioural changes in the real sector will be achieved. Also, the government should direct effort towards improving the level of development of both the money and capital market.
