THE EFFECT OF MONETARY POLICY ON THE ECONOMIC GROWTH IN NIGERIA

CHAPETR ONE

INTRODUCTION 

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPETR TWO

2.0   LITERATURE REVIEW

CHAPETR THREE

3.0        Research methodology

3.1    sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1 Introductions

4.2 Data analysis

CHAPTER FIVE

5.1 Introduction

5.2 Summary

5.3 Conclusion

5.4 Recommendation

Appendix

Abstract

The purpose of this project is based on the effect of monetary policy on economic growth in Nigeria. This work discussed the meaning of monetary policy as monetary management techniques put in place by the government through the central bank to control money stock in order to influence broad macro-economic objectives. The data used is a primary and secondary data collected from central bank of Nigeria statistical bulletin between the periods of 1981 to 2014, and multiple regression analysis of ordinary least square (OLS) were used. The variables of the model includes: GDP Growth as the dependent variable and broad money supply, interest rate, and monetary policy rate as the independent variables. The result shows that money supply is statistically significant, which means that money supply influences growth positively in Nigeria

 CHAPTER ONE

INTRODUCTION

• Background of the study

Monetary management is often an integral part of macroeconomic management, which is usually within the purview of the Monetary Authority or rather Central Bank of a state on its behalf. Monetary policy is therefore a tool for monetary management of a country, which involves the use of some combinations of instruments by the Central Bank to influence the availability and cost of credit and/or money in the domestic economy with a view to achieving macroeconomic balance/stability via economic growth. On the other hand, macroeconomics policy refers to actions taken by government agencies responsible for the conduct of economic policy to achieve some desired objective of policy through the manipulation of a set of instrumental variables. This conceptualization delineates two sets of variables “target variables” and “instrumental variables”. Target variables are ones for which the government seeks desirable values and are immediate goals of macroeconomic policy. The major target variables or goods are full employment, price stability and satisfactory rate of economic growth, an equitable distribution of income and balance of payments equilibrium. Instrumental variables, on the other hand, are those variables that the government can manipulate to achieve its economic objectives. They are necessarily exogenous variables as the government must be able to determine the values independently of the other variables in the system. Thus, macroeconomic policies deal with the various actions of policy makers of change the levels of employment, the price level, output, income distribution, and external balance in the appropriate directions through the manipulation of relevant policy instruments. In Nigeria, the key macroeconomic policies are monetary policy, fiscal, Exchange rate and Income policies. However, more importantly is that the effective management of the monetary policy is a fundamental pre-requisite in ensuring adequate liquidation in the banking system and sectoral credit allocation to the sensitive. Sectors of the economy such as: power, agricultural, aviation, SMEs, etc. The above therefore, shows that monetary policy management goes beyond price stability, particularly amongst developing countries, but with a dual mandate: price stability and sustainability of economic growth. Monetary policy influences the level of money stock and/or interest rate i.e. availability, value and cost of credit inconsonance with the level of economic activity, Ibeabuchi (2007). Macroeconomic aggregates such as output, employment and prices are, in turn, affected by the stance of monetary policy through a number of ways including interest rate or money; credit, wealth or portfolio, and exchange rate channels, Akhatar (1997), CBN (1995). This aptly means that Monetary Authority applies discretionary power to influence the money stock and interest rate to make money either more expensive or cheaper depending on the prevailing economic conditions and policy stance geared towards achieving price stability. Wrights man (1976) succinctly puts it thus; monetary policy is nothing more than deliberate attempt to control the money supply and credit conditions for the purpose of achieving certain broad economic objectives. In general, most Monetary Authorities or Central Banks have been saddled with controlling inflation; maintaining a healthy balance of payments position to safeguard the external value of the domestic currency and promoting economic growth

• STATEMENT OF THE PROBLEM

One of the major objectives of monetary policy in Nigeria is price stability. But despite the various monetary regimes that have been adopted by the Central Bank of Nigeria over the years, inflation still remains a major threat to Nigeria’s economic growth. Greenspan (2003) observed succinctly that “Uncertainty is not just an important feature of the monetary policy landscape; it is the defining characteristic of that landscape” within the Nigerian monetary environment, data „robousity‟; data transmission mechanism and fiscal environment are notably found as her greatest challenge and uncertainty. This has become particularly interesting because according to Ibeabuchi (2007), the Nigerian external sector (balance of payment) via change in net foreign assets; government budget (net credit to government) influence monetary survey as much as the real growth of the economy and prices. Okorie (2009) observed that monetary data that as a component of monetary policy proposals are often subject to frequent revision together with non-availability and quality concerns of non-monetary data such as real sector statistics. He further opined that transmission problem of monetary data is peculiar to most developing countries of which Nigeria is not an exception. One of the peculiar challenges of transmission channels is the „obsolesce‟ of the channel; relevant, and/or that the assumed magnitude of impact could be wrong by some significant Nigeria. This incidence is high, particularly for the fact that the structural relationship often subsisting amongst developing economies changes frequently, e.g. what constitute money has been expanded by the introduction of technology-backed proliferation of financial products which seemingly alter the empirical relationship between economic activity, inflation and the broad money (M2) in Nigeria, Okorie (2009). Finally, fiscal surprises have been seen to undermine monetary policy substantially, for instance, in the event of fiscal tax surface, monetary policy is expected to immediately become reasonably investment to maintain both internal and external balance. From the foregoing, therefore, the study’s challenge is therefore how best to manage the uncertainties in such way as to continue to pursue the basic and primary function of monetary policy for efficient price stability and sustainable economic growth.

• OBJECTIVE OF THE STUDY

The objectives of the study are;

1. To ascertain the effect of monetary policy on the economic growth of Nigeria
2. To evaluate the impact of money supply on price stability and growth
3. To examine the impact of financial deepening on growth
4. To examine the impact of interest rate on growth
   • RESEARCH HYPOTHESES

For the successful completion of the study, the following research hypotheses were formulated by the researcher;

H₀:  there is no effect of monetary policy on the economic growth of Nigeria

H₁: there is effect of monetary policy on the economic growth of Nigeria

H₀²:  there is no impact of money supply on price stability and growth

H₂:  there is impact of money supply on price stability and growth

• SIGNIFICANCE OF THE STUDY

Most theories of economic stabilization revolve around monetary policies. This explains why several instruments have been experimented in Nigeria since 1986. Ogun and Adenikinju (1995) observed that money supply growth averaged about 33% in 1991 – 1980 and 13% in 1981 – 1989, inflation appears to have moved in line, with respective levels of 19% and 16% in the last two decades. Secondly, the explosive stage of Nigeria’s inflationary experience appears to be in the 1973 – 1975 period which coincides with the period of the first oil shock of the 1970s, between 1973 and 1974 alone; the country’s foreign exchange receipts grew at the unprecedented rate of about 113%. It was further noted that the monetary authority appears to have relied almost exclusively on commutation of foreign exchange receipts into domestic expenditures in the oil boom period but resolved to deficit financing in order to sustain the expansionary monetary impulse in non-oil boom years; similarly, inflationary financing was experienced leading to negative real deposit interest rate, hence, decline in the velocity circulation of money supply as a result of fall in the efficiency of money in the production processes

• SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the effect of monetary policy on the economic growth of Nigeria. The researcher encounters some constrain which limited the scope of the study;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities and examinations with the study.
3. c) Organizational privacy: Limited Access to the selected auditing firm makes it difficult to get all the necessary and required information concerning the activities.

DEFINITION OF TERMS

MONETARY POLICY: Monetary policy is the process by which the monetary authority of a country, typically the central bank or currency board, controls either the cost of very short-term borrowing or the monetary base, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.

ECONOMIC GROWTH: Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP.

1.8 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows

Chapter one is concern with the introduction, which consist of the (overview, of the study), historical background, statement of problem, objectives of the study, research hypotheses, significance of the study, scope and limitation of the study, definition of terms and historical background of the study. Chapter two highlights the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study

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