ABSTRACT
The study assessed the effect of informal sector on the monetary policy in Nigeria. To achieve its objective, the study adopted Autoregressive Distributed Lag (ARDL) approach. The key variables of the model are the broad money supply (monetary policy), informal economy, interest rate and the high-powered money. The data on these variables used for the study, which covered the period between 1980 and 2018, were gathered from the CBN yearly statistical publication of different issues as well as journals.
The study finds that the informal sector has a small negative impact on the monetary policy in Nigeria in the short run and the long run. Also, the study suggested that while high-powered money has a positive relationship with the monetary policy, the relationship between the monetary policy and the interest rate is negative.
The study, therefore, concluded that a large size of informal sector can mitigate the effective functioning of the monetary policy in Nigeria. Consequently, the size of the informal sector in Nigeria must be controlled to enhance a vibrant monetary policy.
