IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF APPLIED SCIENCES AND MATHEMATICAL THEORY (IJASMT )

E- ISSN 2489-009X
P- ISSN 2695-1908
VOL. 8 NO. 1 2022

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Vector Autoregressive Modeling of the Impact of Monetary Policy on Macroeconomic Variables in Nigeria (1996-2020)

Iwunze, Kelechi Chizoba & Ette H. Etuk

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Abstract

The impact of monetary policy on macroeconomic variables has been a cause of concern. Therefore, the study was carried out to do vector autoregressive modeling of the impact of monetary policy on macroeconomic variables in Nigeria (1996-2020). The purpose of the study includes; to investigate the co-integrating relationship between exchange rate, interest rate, and crude oil price and inflation rate, establish the causality of exchange rate on crude oil price and inflation rate, find out the effects of exchange rate on crude oil price and inflation rate in Nigeria and find out the effects of interest rate on crude oil price and inflation rate in Nigeria. The design for the study was an ex post facto research design. The data used for this study were the Exchange rate(Naira/dollar), Interest Rate (Naira), Nigerian Crude oil Price, and Inflation Rate, and these were extracted from the website of the Central Bank of Nigeria (CBN) www.cbn.gov.ng and the data used spanned from 1st January 1996 to 31st December, 2020. The statistical software used for data analysis was Eview Software Version 10. The results of the analysis show that long run relationship did not exist between the variables under investigation; It was also found that the exchange rate has positive effect on crude oil price, inflation rate, and their past innovation in Nigeria and that interest rate has a positive effect on crude oil price and its past innovation in Nigeria, while interest rate has negative effect on the inflation rate in Nigeria. On the issue of granger causality, it was found that exchange rate granger caused crude oil prices and inflation. This indicates significant influence and uni- directional effect from exchange rates to crude oil prices and inflation rates. It was recommended that there should be intensive monetary policy development measures that will capture both short-run and long-run relationship between macroeconomic variables, as well as structural reform

keywords:

Monetary, Policy, Macroeconomic, Variables

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