IIARD International Institute of Academic Research and Development

INTERNATIONAL JOURNAL OF ECONOMICS AND FINANCIAL MANAGEMENT (IJEFM )

E-ISSN 2545-5966
P-ISSN 2695-1932
VOL. 2 NO. 2 2017

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Monetary Policy Transmission Mechanisms and Domestic Real Investment in Nigeria: A Time Series Study 1981-2015.

Lucky Anyike Lucky & Uzah Cheta Kingsley

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Abstract

This study examined the effects of monetary policy transmission mechanisms on the domestic real investment in Nigeria. Time series data were sourced from Central Bank of Nigeria statistical bulletin from 1981 to 2015. Domestic real investment was modeled as the function of percentage of credit to private sector to gross domestic product, naira exchange rate per US dollar, maximum lending rate, monetary policy rate, prime lending rate, net domestic credit, savings rate and Treasury bill rate. Granger causality test and Johansen co-integration test in the vector error correction model (VECM) setting were employed. Durbin Watson, ? Coefficient, R-Square (R2) and F-Statistics were used to determine the relationship between the dependent and independent variables as formulated in the regression models. The result proved that CPS/GDP, MLR, MPR, NDC and SR have positive relationship with Nigeria real domestic investment while EXR, PLR, and TBR have negative relationship with domestic real investment. The cointegration test proved the present of long run relationship between monetary policy variables and domestic real investment. The ADF test prove that the variables are stationary at first difference, the granger causality test proved both bi-directional, uni-directional and independent relationship running from the independent variables to the dependent variable and from the dependent variable to the independent variables. The error correction model proved that the speed of adjustment is adequate while the parsimonious error correction model proved that MPR and SR have positive relationship while EXR and PLR have negative relationship. From the regression summary, the study concludes that monetary policy transmission mechanism has significant relationship with Nigeria domestic real investment. We recommend that Interest rate management and reactions to domestic real investment must be factored into the management and formulation of monetary policy in Nigeria and instituti

keywords:

Monetary policy transmission mechanism, Domestic Real Investment, Interest rate channel, credit channel, exchange rate channel, asset price channel.

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