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ABSTRACT
Many efforts have been made towards understanding monetary policy transmission mechanism in Nigeria. However, only few studies have examined the relationship between financial inclusion and monetary policy transmission mechanism.
The objective was set to examine the relationship between financial inclusion and monetary policy transmission mechanism in the Nigerian economy. The data used in carrying out this research was sourced from the Central Bank of Nigeria statistical bulletin and World Bank. The sample size employed for this study covers a period of 37 years (1981-2017). Preliminary tests were done such as Augmented Dickey Fuller and the Phillips-Perron unit root test for stationarity of the variables, the Johansen co-integration test was used to ascertain if there’s an equilibrium long run relationship between the variables. This study also used the Vector Error Correction Model (VECM) as well as Forecast Error Variance Decomposition and Impulse Response Functions to determine the impact of financial inclusion on monetary policy transmission mechanism in Nigeria.
The results of the study show that the financial inclusion played an important role in influencing the impact of monetary policy on its growth and inflation target in Nigeria. The potentials of financial inclusion in fostering the interest rate channel of monetary policy transmission in Nigeria was also evaluated and it was seen that financial inclusion had a significant influence on the interest rate channel of monetary policy transmission in Nigeria.
On the strength of this evidence, this research recommends thatthe government should join hands with monetary authorities in order to provide policies that will further the extent of financial inclusion in the economy and proper measures should be put in place to make sure that financial literacy programs are available to individuals in the country in order to promote inclusiveness in the financial sector.
