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Monetary Policy Rate and Economic Growth in Nigeria

Author

Listed:
  • Okey O. Ovat

    (Department of Economics, University of Calabar, Calabar, Nigeria.)

  • Rimamtanung Nyiputen Ishaku

    (Department of Economics, University of Calabar, Calabar, Nigeria.)

  • Malachy Ashywel Ugbaka

    (Department of Economics, University of Calabar, Calabar, Nigeria.)

  • Eugene Okoi Ifere

    (Department of Economics, University of Calabar, Calabar, Nigeria.)

Abstract

This study empirically evaluated the effect of monetary policy rate (MPR) on Nigeria s economic growth using annual data spanning 2006-2020. The technique adopted in this paper is a simultaneous equation model using two Stage Least Squares (2SLS). Variables of interest were Broad money supply as a ratio of GDP (M2/GDP), Credit to the private sector as a ratio of GDP (CPS/GDP), Cash reserve ratio (CRR), Liquidity ratio (LQR), and Lending interest rate (LIR). The preliminary unit root test revealed stationarity at first difference. The weak instrument test result shows a robust instrument at 10 and 20%. While the residual result indicates an absence of heteroskedasticity in the model. The findings revealed that monetary policy rate has a negative but significant effect on economic growth, Real Exchange Rate (REXR) has an inverse relationship and significant effect on economic growth while inflation (INFL) has a negative and insignificant impact on economic growth. Given that monetary policy rate significantly impacts economic growth in Nigeria, the paper recommended that the Central bank of Nigeria should ensure that the fixing of the monetary policy rate is such that it enables the flow of credit in the desired direction to boost investment and economic activities in the economy; by identifying the Monetary Policy Rate threshold that is suitable for price stability, investment and output growth.

Suggested Citation

  • Okey O. Ovat & Rimamtanung Nyiputen Ishaku & Malachy Ashywel Ugbaka & Eugene Okoi Ifere, 2022. "Monetary Policy Rate and Economic Growth in Nigeria," International Journal of Economics and Financial Issues, Econjournals, vol. 12(3), pages 53-59, May.
    • Handle: RePEc:eco:journ1:2022-03-6
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    References listed on IDEAS

    as
    1. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(3), pages 717-737.
    2. Katarzyna Appelt, 2016. "Keynes' Theory of the Interest Rate: A Critical Approach," Theory Methodology Practice (TMP), Faculty of Economics, University of Miskolc, vol. 12(01), pages 3-8.
    3. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
    4. Odhiambo, Nicholas M., 2008. "Financial depth, savings and economic growth in Kenya: A dynamic causal linkage," Economic Modelling, Elsevier, vol. 25(4), pages 704-713, July.
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    Cited by:

    1. Bosede Olanike Awoyemi & Mark Achukwu & Simon Asala & Oluwole Aiyegbusi & Tajudeen Abiodun Onikate-Amosu, 2024. "Building Resilience for Transformational Recovery: An Analysis of Monetary Policy and Economic Growth in West Africa before and Following the COVID-19 Periods," International Journal of Economics and Financial Issues, Econjournals, vol. 14(4), pages 111-122, July.

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    More about this item

    Keywords

    Monetary policy Rate; Monetary policy committee; Tow stage least squares; Instrumental variable; Economic growth;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

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