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Interest Rate Chanel of Monetary Transmission Mechanism: Evidence from Nigeria

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  • Ikechukwu Kelikume

Abstract

The interest rate channel of monetary transmission is the link through which variations in Central Bank real interest rates influence aggregate output and prices. To check fluctuation in prices, the Central Bank of Nigeria has kept the monetary policy rate stable at 12 percent for the past three years with the view that stability in interest rates will provide the needed incentive for domestic investment to thrive. The long run linkage between real interest rates, inflation and output in a developing country like Nigeria calls for empirical investigation. This study tests the interest rate channel of monetary transmission in Nigeria to enable us establish the extent of stickiness in interest rates in realizing macroeconomic policy goals. The study made use of co-integration and error correction mechanisms in investigating the channel through which nominal interest rates influence long run economic aggregates. The study made use of secondary time series data with quarterly frequency from Q1:1996 to 2013:Q3. Results obtained would help track the speed with which monetary policy changes transmits to the economy and the speed of adjustment from the short run to the long run.

Suggested Citation

  • Ikechukwu Kelikume, 2014. "Interest Rate Chanel of Monetary Transmission Mechanism: Evidence from Nigeria," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(4), pages 97-107.
    • Handle: RePEc:ibf:ijbfre:v:8:y:2014:i:4:p:97-107
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    More about this item

    Keywords

    Monetary Policy; Interest Rate; Monetary Transmission Mechanism;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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