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Interest Rate And Credit Sensitivity Of Sectoral Output In Nigeria

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  • Ikechukwu Kelikume

Abstract

The Keynesian framework for the transmission of monetary policy to real sectors of the economy proposes that changes in the cost of capital will lead to changes in investment culminating to a change in output measured in GDP. Conventionally, a reduction in interest rate will all things being equal stimulate economic activities that will trigger substantial growth in the economy. The existence of structural rigidities in most developing countries like Nigeria renders monetary policy ineffective and distorts the link between interest rates and sectoral output performance. This study seeks to investigate the relative responsiveness of sectoral output to changes in interest rate and credit allocation in Nigeria. The study will make use of quarterly time series data spanning over a period of 23 years, sourced directly from the CBN and the National Bureau of Statistics. The paper utilized the impulse response function and Granger causality test to examine the sensitivity of sector output to changes in interest rate and credit. The intention is to understand the dynamic sensitivity of sectoral output to changes in interest rate and credit allocations. The result obtained from the study show the various sectors of the Nigerian economy responds significantly to credit allocation but not to interest rate. The result concludes that the use of interest rate to influence sector output growth for Nigeria is in-effective while efforts should be channelled at selective credit allocation and a mix of monetary and fiscal policy to achieve the desired macroeconomic short term and long term goals

Suggested Citation

  • Ikechukwu Kelikume, 2015. "Interest Rate And Credit Sensitivity Of Sectoral Output In Nigeria," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 9(4), pages 103-114.
    • Handle: RePEc:ibf:ijbfre:v:9:y:2015:i:4:p:103-114
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    References listed on IDEAS

    as
    1. Dorothy Nampewo & Ezra Munyambonera & Musa Mayanja Lwanga, 2013. "Sectoral effects of monetary policy in Uganda," Journal of Statistical and Econometric Methods, SCIENPRESS Ltd, vol. 2(4), pages 1-2.
    2. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    3. Dedola, Luca & Lippi, Francesco, 2005. "The monetary transmission mechanism: Evidence from the industries of five OECD countries," European Economic Review, Elsevier, vol. 49(6), pages 1543-1569, August.
    4. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    6. repec:zbw:bofitp:2002_014 is not listed on IDEAS
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    More about this item

    Keywords

    Interest Rates; Credit Sensitivity; Sectoral Output;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production

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