IMPACT OF MONETARY POLICY ON ECONOMIC GROWTH IN NIGERIA

ABSTRACT

This study was carried out with objective of finding out the impact of monetary policy on economic growth in Nigeria. With the poor performance of the country in terms of economic growth and the ever increasing inflation level, the study main objective was to ascertain the level to which monetary policy can promote economic growth and to give a possible solution to the ever increasing inflation level in the country.

In this study economic growth was represented as GDP which is our dependent variable and inflation, interest rate, money supply and monetary policy rate were our independent or explanatory variables. This study employed various analytical techniques to carry out many test. Techniques like OLS was used for our regression, Unit Root Test was also conducted using the Augmented Dickey Fuller. Co-integration test was also carried out using the Johansen Co-integration. The R², t-test and f-test were all used in testing for the significance of the model. The Durbin-Watson Statistics was used to check for the presence of serial correlation. Also the Error Correction Mechanism was used to correct the deficit experienced in the OLS method

The findings gotten from this study revealed that out of the four explanatory variables that was used for the study, only two was Significant. Inflation and monetary policy rate was Significant at 5% level of significance, while interest rate and money supply were both insignificant. The result of our coefficient of determination (R²) which is 0.73, showed that the explanatory variables were able to explain 73% variation that occurs in the dependent variable GDP. We recommended that the Central Bank of Nigeria should make there monetary policy path smooth enough to tackle the increasing Inflation that has hindered economic growth in the country.