THE IMPACT OF MONETARY POLICY MEASURES AS AN INSTRUMENT OF ECONOMIC STABILIZATION IN NIGERIA (1980-2010)

ABSTRACT
The study examined the impact of monetary policy in stabilizing the Nigeria economy. The government employs a deliberate manipulation of cost and availability of credit and money to achieve this economic objective. The CBN being the sole regulatory body combines measures designed to regulate the value, supply and cost of money into economic activities. This is what we call monetary policy (CBN Brief 1996/03). It is against this background that the research is carried out to ascertain the effect in the use of monetary policies such as money supply, interest rate, liquidity ratio, minimum rediscount rate, inflation rate and cash reserve requirement to stabilize the Nigeria economy. Also to determine the relationship that exists between the independent variables and dependent variable from the secondary data for the period under study (1980 – 2010). The statistical technique that will be used for this analysis is the ordinary least square technique, with the aid of PC five 8.00 software package. It has been identified that the major problem militating against the poor performance of monetary policy instruments in stabilizing the economic in Nigeria is time lags which involves policy employed to take many months to achieve its full effects. This research recommends that there should be a reduction in the cost of production and increase the exportation in order to achieve the objectives of naira devaluation in Nigeria and also, central banks should be independent and should be able to achieve its inflation targets and the stabilization of growth rate in money supply.

                                    CHAPTER ONE

INTRODUCTION

• BACKGROUND OF THE STUDY

Monetary policy is the process by which monetary authority of a country controls the supply of the money that is monetary stock often targeting a rate of interest for the purpose of promoting economic growth and stability.
Monetary policy measures are monetary management put in place by the government through the central bank. These measures rely on the control of monetary stocks, that is supply of money in order to influence board macro- economic objectives which includes price stability, high level of employment sustainable economic growth and balance of payment equilibrium. These board objectives are achieved through the use of appropriate instrument depending on which objective the policy formulated want to achieved and also on the level of development on the economy.

In the application of monetary policy measures as instrument of stabilization, instrument of monetary policy are determined by the nature of the problems to be solved and by this environment in which these problems exist. They are broadly two categories of these instruments VIZ- indirect and direct instruments.

INDIRECT INSTRUMENT are usually used in the market based on economic where the quality of money stock can affected through the relationship between supply and resume money as well as the ability of the monetary authority to influence the creation of reserved.
The reserved and hence money supply can be affected through the following ways.

1. Deposit ratio/change in reserve.
2. Change in discount rate.
3. Interest rate change.
4. Engaging in an open market operation.

In an underdeveloped financial institution the instrument of monetary management is largely limited to direct measure which set monetary and credit target at desired levels. The major DIRECT control measure is direct investment regulation however quantitative ceiling on overall credit operation is also used. These instruments of monetary policy are applied in the achievement of varied objectives.

• STATEMENT OF THE PROBLEMS

The Nigeria economy has encountered the problem of disequilibrium, inability to mobilize domestic savings and unsatisfactory expansion of domestic output. These problems have consistently and presently done severe damage to Nigeria economy; but most strikingly these problems have continued to play the economy unabated that is, the economy is becoming less strong. It is against the background that the problem of this study has been identified and they are as follows.
1. Are monetary policy measures effective as instrument of economic stabilization?
1.3 OBJECTIVES OF THE STUDY

The major objectives of this study are:

To analyze the various monetary policy objectives and instrument of economic stabilization for the period.
ii. To ascertain the level of success of policy measures against desired objects.
iii. To identify the factors that tends to hinder the full attainment of desired objectives.
iv. To recommend the appropriate policy measures for the achievement of specific objectives as well as recommend solution to problem that hinders the full attachment of such objectives

• RESEARCH HYPOTHESIS

Hypotheses are testable tentative and problem explanation of the relationship between two or more variable the credit a state of affairs of phenomenon.  It may be reviewed as a conjectural proposition an informed intelligent guess about the solution to a problem the researcher therefore deemed it necessary to establish the following hypotheses that.

H₀: Monetary policy measures have no impact on the economic stabilization in Nigeria.
H₁: Monetary policy measures have impact on the economic stabilization in Nigeria

H_o: A reduction in money supply has led to a current account surplus in the balance of payment

H₂: A reduction in money supply has not led to a current account surplus in the balance of payment

1.5 SIGNIFICANCE OF THE STUDY

These researches provide insight into monetary policy measures as an instrument of economic stabilization and will therefore be of valuable use to the following set of people. To student, it will provide a compliment to the fair existing text on monetary policy and economic stabilization. To bankers, it will also find a valuable tool toward analyzing the effect of government action on their activities whether it is valuable or not. To investors, it will serve as a guideline on the effect of monetary policy on various sectors of the economy in which their fund can be invested. To the ordinary reader, this work will serves as an open eye and a valuable store of knowledge.

1.6 SCOPE AND LIMITATION OF THE STUDY

This research work covers the monetary policies from (1980 – 2010). This study will cover the relationship between the individual who would wish to know about the country’s economic state, and it is hoped that it will go a long way to solve some of the economic problems as regards to monetary policies and its measure as an instrument of economic stabilization. In the cause of the study, the researcher encounters some limitations which limited the scope of the study;

Time constraint: The researcher will simultaneously engage in this study with other academic work. This consequently will cut down on the time devoted for the research work.

Inadequate Materials: Scarcity of material is also another hindrance. The researcher finds it difficult to long hands in several required material which could contribute immensely to the success of this research work.

Financial constraint: Insufficient fund tends to impede the efficiency of the researcher in sourcing for the relevant materials, literature or information and in the process of data collection (internet, questionnaire and interview).
1.7 DEFINITION OF TERMS

Monetary stock: This is the amount of money in circulation at any point in time.

Reserve money: This refers to the amount of money, banks are required to maintain in their vaults.

Reserve ratio: This is the ratio of deposit that banks are required to maintain with the central banks.

Discount rate: This is the rate at which the central bank make loan to commercial bank as a leader of last resort. This term is used to qualify the central bank, when banks are cash trapped; it is the central bank that lends to them, whenever there is no alternative or liquidation.

Economic stabilization: It is the maintenance of a relatively stable and favouarble level for all the economic indicators.

Macro- economic: It is the branch of economic that deals with the study of the economy as a whole. It studies to the problem.

Monetary policy: The combination of measure designed to regulate the supply of money to an economy.

Money stock:  The amount of money in circulation at any profit in time. This is variable and could be affected.

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), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight 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 also recommendations made of the study.

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